1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,039 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Lee, we bring 3 00:00:13,119 --> 00:00:17,119 Speaker 1: you insight from the best and economics, financial investment, and 4 00:00:17,239 --> 00:00:22,400 Speaker 1: international relations fine Bloomberg Surveillance on Apple podcast, sun Cloud, 5 00:00:22,800 --> 00:00:26,280 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Terminal. 6 00:00:29,360 --> 00:00:31,360 Speaker 1: I'm happy to say that joining us now is Bill Dudley, 7 00:00:31,360 --> 00:00:34,280 Speaker 1: the former New York Fed President and currently Bloomberg opinion 8 00:00:34,320 --> 00:00:36,600 Speaker 1: columnists and so much more. Bell great to catch up 9 00:00:36,600 --> 00:00:38,160 Speaker 1: with you, sir. I just want to reflect on something 10 00:00:38,159 --> 00:00:41,160 Speaker 1: we heard about five minutes ago from David Rosenberg pushing 11 00:00:41,200 --> 00:00:44,600 Speaker 1: back against this idea that inflation will be stickier on 12 00:00:44,640 --> 00:00:46,280 Speaker 1: the way down. Bill. I know you listen to some 13 00:00:46,320 --> 00:00:49,320 Speaker 1: of that conversation. What did you make of it? I 14 00:00:49,400 --> 00:00:51,800 Speaker 1: agree with Dade that inflation is going to take a 15 00:00:51,800 --> 00:00:54,200 Speaker 1: longer time to corral, and people think, I mean, people 16 00:00:54,200 --> 00:00:57,160 Speaker 1: are focusing so much on the improvement in goods inflation 17 00:00:57,240 --> 00:01:00,280 Speaker 1: that was well expected as as a time he has 18 00:01:00,320 --> 00:01:03,080 Speaker 1: opened up the composition demand shifted away from goods back 19 00:01:03,120 --> 00:01:05,600 Speaker 1: to services, So of course whose prices are gonna be weaker, 20 00:01:05,959 --> 00:01:08,800 Speaker 1: But services inflation is really high, and the labor market 21 00:01:08,880 --> 00:01:11,479 Speaker 1: is still really tight. We're still having job gains well 22 00:01:11,520 --> 00:01:15,360 Speaker 1: above what's consistent with a loosening labor market. So the 23 00:01:15,360 --> 00:01:17,039 Speaker 1: Fed's got a lot of work to do. I think 24 00:01:17,080 --> 00:01:19,360 Speaker 1: the big thing about what the next you know you're 25 00:01:19,440 --> 00:01:21,160 Speaker 1: is gonna look like it's really it's really in the 26 00:01:21,160 --> 00:01:24,399 Speaker 1: fense control. The FED is going to keep policy tight 27 00:01:24,480 --> 00:01:26,560 Speaker 1: enough for long enough to get inflation back down, and 28 00:01:27,040 --> 00:01:29,200 Speaker 1: you know, the outcome we get for the economy is 29 00:01:29,200 --> 00:01:32,400 Speaker 1: gonna depend on how how much that actually hurts economic growth. 30 00:01:32,760 --> 00:01:34,280 Speaker 1: I think there is gonna be a recession. I think 31 00:01:34,280 --> 00:01:37,559 Speaker 1: it's gonna last quite a while, but it's not gonna 32 00:01:37,560 --> 00:01:39,720 Speaker 1: be a dangerous recession in the sense that the FED 33 00:01:39,760 --> 00:01:42,520 Speaker 1: can relent at any time uh and end that recession, 34 00:01:42,560 --> 00:01:45,520 Speaker 1: which is very unusual compared to past cycles. This is 35 00:01:45,560 --> 00:01:48,080 Speaker 1: not a recession that has been driven by you know, uh, 36 00:01:48,160 --> 00:01:50,920 Speaker 1: financial instability. Is not gonna be a recession driven by 37 00:01:51,320 --> 00:01:54,440 Speaker 1: you know, household and corporate balance sheets being over extended. 38 00:01:54,760 --> 00:01:57,920 Speaker 1: It's a recession that's clearly induced by a tight Monterrey 39 00:01:57,960 --> 00:02:00,280 Speaker 1: policy regime, and so the FAT can end it when 40 00:02:00,280 --> 00:02:02,320 Speaker 1: they think that the time is great. Given the strength 41 00:02:02,320 --> 00:02:04,480 Speaker 1: that we've continue to see in the economy, and Evan 42 00:02:04,560 --> 00:02:07,880 Speaker 1: Brown of UBSS Management was talking about them seeing it 43 00:02:07,960 --> 00:02:10,720 Speaker 1: sustained through the first half of next year. Do you 44 00:02:10,760 --> 00:02:13,680 Speaker 1: think the FED could go even higher than you previously 45 00:02:13,760 --> 00:02:17,440 Speaker 1: thought in terms of a benchmark rate, I'm thinking the 46 00:02:17,440 --> 00:02:19,120 Speaker 1: peak is probably in the five to five and a 47 00:02:19,120 --> 00:02:21,359 Speaker 1: half percent range. Just for what you for the point 48 00:02:21,360 --> 00:02:23,760 Speaker 1: you just made that the news will probably be stronger 49 00:02:23,800 --> 00:02:25,560 Speaker 1: for longer and will be very hard for the FED 50 00:02:25,639 --> 00:02:28,240 Speaker 1: just to stop if we're still, you know, at an 51 00:02:28,280 --> 00:02:32,080 Speaker 1: unemployed rate below four percent and underlying inflation still running 52 00:02:32,120 --> 00:02:34,760 Speaker 1: you four percent or higher. So I think that it 53 00:02:34,840 --> 00:02:37,760 Speaker 1: will get a series of smaller rate hikes, but that 54 00:02:37,800 --> 00:02:40,720 Speaker 1: will probably push us up above above five percent. But 55 00:02:40,760 --> 00:02:44,079 Speaker 1: clearly the feds of strategy here is they're stressing the 56 00:02:44,160 --> 00:02:47,000 Speaker 1: longer rather than the ever higher. So I think once 57 00:02:47,040 --> 00:02:48,720 Speaker 1: we get you know, five and a quarter five and 58 00:02:48,760 --> 00:02:51,200 Speaker 1: a half, I think they'll they'll relent and they'll just 59 00:02:51,200 --> 00:02:54,760 Speaker 1: si sit there and wait for that restrictive Monterrey policy 60 00:02:54,960 --> 00:02:57,840 Speaker 1: to slow the calmy down, generate more slack in the 61 00:02:57,919 --> 00:03:01,280 Speaker 1: layer market, and that will gradually put both wage inflation 62 00:03:01,400 --> 00:03:04,400 Speaker 1: and services price inflation down. This is what FEDE officials 63 00:03:04,440 --> 00:03:06,640 Speaker 1: have been saying, Bill, I mean, this is basically pretty 64 00:03:06,720 --> 00:03:08,680 Speaker 1: much in line with what they're saying. The market is 65 00:03:08,720 --> 00:03:11,600 Speaker 1: not buying it. They are still pricing in rate cuts 66 00:03:11,600 --> 00:03:13,760 Speaker 1: by the end of next year. What does the FED 67 00:03:13,880 --> 00:03:16,760 Speaker 1: have to see to start becoming less restrictive, And I 68 00:03:16,800 --> 00:03:20,320 Speaker 1: don't mean that with respect to keeping rates where they 69 00:03:20,360 --> 00:03:24,400 Speaker 1: I mean actually lowering them in a significant way. Well, 70 00:03:24,400 --> 00:03:26,120 Speaker 1: they have to be highly confident that they're gonna be 71 00:03:26,160 --> 00:03:28,560 Speaker 1: able to achieve their two percent inflation object doesn't mean 72 00:03:28,560 --> 00:03:30,240 Speaker 1: that inflation you have to be at two percent when 73 00:03:30,280 --> 00:03:32,639 Speaker 1: they finally reliant, but they have to be highly confident. 74 00:03:33,040 --> 00:03:35,920 Speaker 1: Highly confidently mean means that they have to see significant 75 00:03:36,440 --> 00:03:39,560 Speaker 1: slack developing in the labor market that brings down wage 76 00:03:39,560 --> 00:03:43,040 Speaker 1: inflation to the three or four percent range. And they 77 00:03:43,080 --> 00:03:47,360 Speaker 1: need to see the inflation pressures be much, uh, you know, 78 00:03:47,800 --> 00:03:51,680 Speaker 1: much less persistent and broad as as they are today. 79 00:03:51,720 --> 00:03:53,560 Speaker 1: So they need to see probably inflation in the sort 80 00:03:53,600 --> 00:03:56,600 Speaker 1: of three percent range headed down, uh. And once they 81 00:03:56,680 --> 00:03:59,520 Speaker 1: once they've accomplished both of those things, then maybe they 82 00:03:59,520 --> 00:04:01,640 Speaker 1: can start to relent. But I think it's gonna take 83 00:04:01,640 --> 00:04:03,880 Speaker 1: away some time because the commie still has a considerable 84 00:04:03,920 --> 00:04:07,080 Speaker 1: for momentum, and it's it's going to be sustained by 85 00:04:07,240 --> 00:04:09,520 Speaker 1: by by the past inflation that we've seen. For example, 86 00:04:09,640 --> 00:04:11,800 Speaker 1: so security recipients are gonna get eight points seven percent 87 00:04:11,840 --> 00:04:15,840 Speaker 1: increase in their checks come January, and they're gonna go 88 00:04:15,840 --> 00:04:17,520 Speaker 1: ahead and spend a bunch of that money, and that's 89 00:04:17,520 --> 00:04:21,560 Speaker 1: gonna keep moving along, and that's gonna make it hard, 90 00:04:21,600 --> 00:04:24,640 Speaker 1: really fit to restrain things. But you wrote yesterday on 91 00:04:24,720 --> 00:04:27,479 Speaker 1: bloom Bag Opinion that the FED shouldn't rate his inflation target. 92 00:04:27,880 --> 00:04:29,960 Speaker 1: He said changing the objective now would be bad for 93 00:04:30,000 --> 00:04:33,120 Speaker 1: the economy and for the central banks and credibility. But 94 00:04:33,160 --> 00:04:35,000 Speaker 1: I did wonder when that will got published. I wondered 95 00:04:35,000 --> 00:04:37,440 Speaker 1: why you wrote it. You've really worried that they might 96 00:04:37,440 --> 00:04:41,160 Speaker 1: actually go through with that next year. Well, I wrote 97 00:04:41,160 --> 00:04:43,600 Speaker 1: it because I'm being asked about it all the time, Uh, 98 00:04:43,640 --> 00:04:45,640 Speaker 1: And so I thought that I should write down what 99 00:04:45,760 --> 00:04:48,599 Speaker 1: I think the ant right answers. You know, the argument 100 00:04:48,640 --> 00:04:51,719 Speaker 1: for raising the inflation target really sort of two potential arguments. 101 00:04:51,800 --> 00:04:55,200 Speaker 1: Number one can't hit too so let's make the objective 102 00:04:55,279 --> 00:04:57,680 Speaker 1: a little bit easier. That's that's obviously not a very 103 00:04:57,680 --> 00:04:59,920 Speaker 1: good argument. The other arguments a little bit better, which is, 104 00:05:00,279 --> 00:05:02,839 Speaker 1: we have a higher inflation target and the peak in 105 00:05:03,040 --> 00:05:05,120 Speaker 1: a short term interest rates during the cycle will be higher, 106 00:05:05,440 --> 00:05:08,599 Speaker 1: more room to ease when when recession hits, and so 107 00:05:08,640 --> 00:05:10,600 Speaker 1: they'll be less risk of being pinned at the zero 108 00:05:10,720 --> 00:05:13,240 Speaker 1: or bound for interest rates. I think that risk, though, 109 00:05:13,240 --> 00:05:15,920 Speaker 1: has diminished considerably because the peak in church and rates 110 00:05:15,920 --> 00:05:18,200 Speaker 1: this cycle is probably gonna be about five percent, So 111 00:05:18,240 --> 00:05:21,680 Speaker 1: the Federal Reserve has plenty of ammunition to cut rates 112 00:05:21,800 --> 00:05:24,880 Speaker 1: uh in environment where there where their inflation target is 113 00:05:24,880 --> 00:05:26,919 Speaker 1: still two percent. So I think this idea that the 114 00:05:27,040 --> 00:05:30,000 Speaker 1: zero or bound continues to be this huge risk. Uh 115 00:05:30,120 --> 00:05:33,039 Speaker 1: And and there's a big constraint on Montrey policy. I 116 00:05:33,080 --> 00:05:35,960 Speaker 1: think that's overstated at this point. But Bill, how concerned 117 00:05:35,960 --> 00:05:37,960 Speaker 1: are you that the Fed will not have the same 118 00:05:37,960 --> 00:05:40,080 Speaker 1: resolve in the middle of next year to keep rates 119 00:05:40,120 --> 00:05:42,560 Speaker 1: where they are if we do see the unemployment rate 120 00:05:42,600 --> 00:05:47,000 Speaker 1: going up but we do see the US entering into recession. Well, 121 00:05:47,040 --> 00:05:49,200 Speaker 1: I think the Committee it will be interesting to see 122 00:05:49,200 --> 00:05:52,120 Speaker 1: whether the Committee is united twelve months from now as 123 00:05:52,120 --> 00:05:55,120 Speaker 1: it is today. I think Chera Paula means what he 124 00:05:55,160 --> 00:05:56,919 Speaker 1: says that he because he wants to behave in a 125 00:05:56,920 --> 00:05:59,719 Speaker 1: way uh, that he's not like Arthur Burns, so he 126 00:05:59,720 --> 00:06:02,280 Speaker 1: doesn't have to be like pauled Loker. But whether you 127 00:06:02,320 --> 00:06:04,719 Speaker 1: can keep the rest of the committee along with him. 128 00:06:05,040 --> 00:06:07,640 Speaker 1: As the unemployer rate goes up and the trade offs 129 00:06:07,680 --> 00:06:10,760 Speaker 1: between the two two objectives of the FED prastability and 130 00:06:11,160 --> 00:06:14,200 Speaker 1: maximum sustainable employment become more in conflict with one another. 131 00:06:14,480 --> 00:06:16,360 Speaker 1: So I think we don't know the answer to that. 132 00:06:16,760 --> 00:06:18,880 Speaker 1: I'm hopeful that power will here in the day. I 133 00:06:18,920 --> 00:06:21,240 Speaker 1: remember when inflation was sub two percent and people were 134 00:06:21,279 --> 00:06:23,880 Speaker 1: talking about raising the inflation target than do you remember 135 00:06:23,960 --> 00:06:26,400 Speaker 1: that you should raise it to three about because then 136 00:06:26,440 --> 00:06:28,480 Speaker 1: there'd be more ambitious and people would believe they're committed 137 00:06:28,480 --> 00:06:30,799 Speaker 1: to getting inflation high. Then they might hit two. Remember 138 00:06:30,800 --> 00:06:33,280 Speaker 1: when they were also talking about free money and of 139 00:06:33,360 --> 00:06:36,360 Speaker 1: modern monetary theory. We did that too crazy times. Bill Dudley, 140 00:06:36,440 --> 00:06:50,000 Speaker 1: thank you. I appreciate it as always alongside Lisa Brabbit's 141 00:06:50,000 --> 00:06:52,880 Speaker 1: Sam Jonathan Pharaoh, together with election of a bm Y 142 00:06:52,920 --> 00:06:54,360 Speaker 1: and Madam. Great to have you with us in a studio. 143 00:06:54,400 --> 00:06:56,320 Speaker 1: And Leah, what is more important the FED speak or 144 00:06:56,360 --> 00:06:58,400 Speaker 1: the data? So so I think it's the data, and 145 00:06:58,480 --> 00:07:01,240 Speaker 1: I think it's precisely the Pabor data, because the FED 146 00:07:01,320 --> 00:07:04,920 Speaker 1: has explicitly targeted the labor market here as inflation has 147 00:07:04,960 --> 00:07:08,919 Speaker 1: remained higher and stickier and not transitory. They've been talking 148 00:07:08,960 --> 00:07:12,360 Speaker 1: about the labor market trying to get rid of job openings, 149 00:07:12,840 --> 00:07:16,200 Speaker 1: the beverage curve, which is the Jolts data, and then 150 00:07:16,240 --> 00:07:19,040 Speaker 1: of course you know the wage data. And I think 151 00:07:19,080 --> 00:07:22,400 Speaker 1: if you don't see softness in either of those two reads, 152 00:07:22,520 --> 00:07:26,000 Speaker 1: it's going to be difficult for them. Are you saying 153 00:07:26,040 --> 00:07:28,559 Speaker 1: that good news is bad news in the labor market data. 154 00:07:28,920 --> 00:07:30,880 Speaker 1: I hate to say that, but we're back to this world. 155 00:07:31,000 --> 00:07:34,760 Speaker 1: I mean we're back to the world where a softer 156 00:07:35,200 --> 00:07:39,520 Speaker 1: real economy will be more pleasing for the FED and 157 00:07:39,680 --> 00:07:43,080 Speaker 1: means that whatever their target is five to five and 158 00:07:43,160 --> 00:07:45,800 Speaker 1: a quarter five to five and a half is still 159 00:07:46,320 --> 00:07:49,080 Speaker 1: the right target. The issue is if you get no 160 00:07:49,240 --> 00:07:51,600 Speaker 1: softness in the labor market, and let's face it, we 161 00:07:51,680 --> 00:07:53,840 Speaker 1: haven't seen any softness in the labor market in the 162 00:07:53,920 --> 00:07:57,320 Speaker 1: aggregate data, then we're going to have to go higher 163 00:07:57,440 --> 00:08:00,640 Speaker 1: because in the end, every FED hiking side goal ends 164 00:08:01,120 --> 00:08:04,440 Speaker 1: when the FED funds rate is above c p I 165 00:08:04,720 --> 00:08:06,600 Speaker 1: and we are not there yet. What are you thinking 166 00:08:06,640 --> 00:08:08,560 Speaker 1: that Fed funds is going so we're going to get 167 00:08:08,680 --> 00:08:11,240 Speaker 1: some real economic projections in the next FED meeting. At 168 00:08:11,280 --> 00:08:13,600 Speaker 1: the last FED meeting where we had an SEP, which 169 00:08:13,680 --> 00:08:16,200 Speaker 1: was back in September, they pushed the twenty three dot 170 00:08:16,240 --> 00:08:18,120 Speaker 1: from three point eight to four point six. I think 171 00:08:18,160 --> 00:08:20,760 Speaker 1: most people, assuming it goes to five is their scope 172 00:08:20,760 --> 00:08:23,920 Speaker 1: for surprise. There there is some scope for it to 173 00:08:24,000 --> 00:08:26,280 Speaker 1: be a little bit higher than that, just because, as 174 00:08:26,320 --> 00:08:29,800 Speaker 1: I've said, the services, the services inflation is not rolling over, 175 00:08:29,920 --> 00:08:32,480 Speaker 1: and the sticky services inflation is not rolling over. So 176 00:08:32,920 --> 00:08:37,440 Speaker 1: while headline is and clearly the goods inflation has peaked 177 00:08:37,480 --> 00:08:40,480 Speaker 1: and coming down hard services has not. And that's six 178 00:08:41,200 --> 00:08:43,920 Speaker 1: c p I so I think there's room to go higher. 179 00:08:44,000 --> 00:08:46,360 Speaker 1: I think as you get higher on FED funds, you're 180 00:08:46,440 --> 00:08:49,760 Speaker 1: going to see a wider dispersion and you're going to 181 00:08:49,920 --> 00:08:52,959 Speaker 1: see some some conversation in the f O m C 182 00:08:53,080 --> 00:08:54,839 Speaker 1: about where we go from here. The I think the 183 00:08:54,960 --> 00:08:58,440 Speaker 1: easy part of the hiking cycle is in a sense 184 00:08:58,559 --> 00:09:02,000 Speaker 1: behind us after this December meeting, and after that you're 185 00:09:02,040 --> 00:09:05,319 Speaker 1: gonna start getting some dissents. What do you think is 186 00:09:05,360 --> 00:09:07,240 Speaker 1: going to be the bigger surprise for markets if we 187 00:09:07,320 --> 00:09:12,040 Speaker 1: get softer than expected jobs prints or stronger, hotter than 188 00:09:12,120 --> 00:09:15,200 Speaker 1: expected jobs prints. So I think the biggest surprise would 189 00:09:15,200 --> 00:09:17,320 Speaker 1: be if we got hotter here. How we were having 190 00:09:17,800 --> 00:09:22,000 Speaker 1: really high um and that number of announcements of of 191 00:09:22,240 --> 00:09:25,360 Speaker 1: layoffs and yet and yet it's not showing up in 192 00:09:25,440 --> 00:09:27,840 Speaker 1: the aggregate data at all. I mean, those those Thursday 193 00:09:27,880 --> 00:09:30,760 Speaker 1: morning new claims data are hitting new lows, are you know, 194 00:09:30,880 --> 00:09:33,920 Speaker 1: barely moving off of off flows. So it's not hitting 195 00:09:33,960 --> 00:09:35,839 Speaker 1: the data yet. So I think if the if the 196 00:09:35,960 --> 00:09:39,439 Speaker 1: numbers were hotter, it would it would be a surprise here. 197 00:09:40,280 --> 00:09:42,520 Speaker 1: People are talking about short and shallow and we've been 198 00:09:42,520 --> 00:09:45,360 Speaker 1: talking about this all morning. What is the consequence of 199 00:09:45,480 --> 00:09:47,679 Speaker 1: this type of recession? How long will it last? We 200 00:09:47,760 --> 00:09:50,280 Speaker 1: were just speaking with Bill Dudley, who agrees with the 201 00:09:50,360 --> 00:09:54,400 Speaker 1: idea of a longer and shallow type of recession. Is 202 00:09:54,480 --> 00:09:58,520 Speaker 1: that an okay scenario for risk assets? So that's a 203 00:09:58,559 --> 00:10:01,079 Speaker 1: great question. And this goes back to the difference between 204 00:10:01,120 --> 00:10:04,079 Speaker 1: the real economy and risk assets. So even in a 205 00:10:04,240 --> 00:10:07,760 Speaker 1: shallow recession, you can still have SMP earnings declines of 206 00:10:08,880 --> 00:10:10,760 Speaker 1: and I'll just point to a two thousand and one 207 00:10:10,880 --> 00:10:13,400 Speaker 1: is a great example of that. Risk assets did not 208 00:10:13,600 --> 00:10:17,439 Speaker 1: do well even with a short and shallow recession, so 209 00:10:17,880 --> 00:10:19,800 Speaker 1: there is still risk here. And in the end, this 210 00:10:20,000 --> 00:10:24,640 Speaker 1: year was about rates and multiple compression and and and 211 00:10:24,800 --> 00:10:27,880 Speaker 1: the correlation between the you know, the bond and equity market, 212 00:10:28,040 --> 00:10:31,079 Speaker 1: you know, the worst being since n one, that this 213 00:10:31,240 --> 00:10:34,600 Speaker 1: is the transition year. Next year is okay, Now your 214 00:10:34,679 --> 00:10:36,640 Speaker 1: rates are higher, what does it mean for the real economy? 215 00:10:36,840 --> 00:10:39,199 Speaker 1: And that's I think we really have not priced in. 216 00:10:39,640 --> 00:10:41,719 Speaker 1: I'm not the only one saying this, but it is 217 00:10:41,840 --> 00:10:44,839 Speaker 1: true that the earnings really are too high and not 218 00:10:45,320 --> 00:10:51,319 Speaker 1: essentially reflecting five basis points of tightening within ten or 219 00:10:51,360 --> 00:10:53,880 Speaker 1: eleven months. I mean, we've never really hyped this fast 220 00:10:54,120 --> 00:10:56,120 Speaker 1: and we haven't seen the effect yet. So that is 221 00:10:56,200 --> 00:10:58,040 Speaker 1: that is down the road and that is short to come. 222 00:10:58,360 --> 00:11:00,760 Speaker 1: Let's talk about leadership. Is it early to talk about 223 00:11:00,800 --> 00:11:02,959 Speaker 1: potential leadership for next year or not? So in a 224 00:11:03,000 --> 00:11:05,640 Speaker 1: funny way, we have started to price in a recession 225 00:11:05,800 --> 00:11:09,559 Speaker 1: around June, then against September, and now we're starting to 226 00:11:09,679 --> 00:11:14,240 Speaker 1: price in a recovery. We haven't even gotten to the recession. 227 00:11:14,679 --> 00:11:18,640 Speaker 1: We haven't even gotten to realistic earnings numbers. So I 228 00:11:18,960 --> 00:11:20,960 Speaker 1: don't think it's too early yet. I mean, there are 229 00:11:21,160 --> 00:11:24,400 Speaker 1: certain sectors, there are certain companies that are just beaten 230 00:11:24,480 --> 00:11:27,520 Speaker 1: down and left for dead, okay, And and that is 231 00:11:27,600 --> 00:11:29,920 Speaker 1: where you can go shopping for for your stock. Like, 232 00:11:30,040 --> 00:11:32,160 Speaker 1: we think the bond market is going to look much 233 00:11:32,200 --> 00:11:34,760 Speaker 1: better next year simply because all the work was done 234 00:11:34,840 --> 00:11:37,120 Speaker 1: this year. And historically, if you look at the ten 235 00:11:37,200 --> 00:11:39,559 Speaker 1: worst starts to the year in the bond market, you 236 00:11:39,640 --> 00:11:41,760 Speaker 1: have a positive year the following year. And it makes 237 00:11:41,800 --> 00:11:43,640 Speaker 1: sense if you think about it. I mean, it's related 238 00:11:43,679 --> 00:11:46,839 Speaker 1: to the rolling over and the and the inversion of 239 00:11:46,840 --> 00:11:49,240 Speaker 1: the yell curve which you mentioned the two thousands. Some 240 00:11:49,320 --> 00:11:51,000 Speaker 1: of those names were left for dead for a long 241 00:11:51,040 --> 00:11:53,640 Speaker 1: long time. Can you help me understand what should be 242 00:11:53,760 --> 00:11:56,400 Speaker 1: left for dead for a long long time? So speculations 243 00:11:56,400 --> 00:11:59,199 Speaker 1: should be left for dead, right, So anything where it's 244 00:11:59,600 --> 00:12:03,360 Speaker 1: multiple of revenue or you know that no earnings, that 245 00:12:03,520 --> 00:12:06,679 Speaker 1: that will be left for dead probably forever. And I 246 00:12:06,720 --> 00:12:09,800 Speaker 1: would suggest there'll be some consolidation in those areas, but 247 00:12:09,880 --> 00:12:12,160 Speaker 1: that's not something to look forward to because there's many 248 00:12:12,240 --> 00:12:14,600 Speaker 1: of these assets still have a ways to go. We're 249 00:12:14,640 --> 00:12:17,160 Speaker 1: not there yet. Left for dead is when you're down 250 00:12:18,480 --> 00:12:21,480 Speaker 1: from the peak. So if you're in a speculative asset 251 00:12:21,600 --> 00:12:24,839 Speaker 1: or a speculative name and you're hoping for you know 252 00:12:25,240 --> 00:12:27,480 Speaker 1: that it's going to you know, the market will stabilize 253 00:12:27,520 --> 00:12:30,120 Speaker 1: one day, you actually still probably have to go on 254 00:12:30,160 --> 00:12:33,679 Speaker 1: the downside. Here, what percent of the overall market cap 255 00:12:33,760 --> 00:12:38,320 Speaker 1: of the SMP is that speculative sort of quadrant that's 256 00:12:38,360 --> 00:12:40,520 Speaker 1: going to be left for dead? I don't like so 257 00:12:40,679 --> 00:12:44,199 Speaker 1: I'd say, my I think it's about it's about ten percent. Here, 258 00:12:44,440 --> 00:12:46,959 Speaker 1: it's about ten percent. I think that some of the 259 00:12:47,000 --> 00:12:50,080 Speaker 1: biggest risk we've talked about this is the large cap 260 00:12:50,200 --> 00:12:53,360 Speaker 1: names which are still trading at higher multiples. You know, 261 00:12:53,480 --> 00:12:55,600 Speaker 1: in the end, when you get a multiple compression year 262 00:12:56,080 --> 00:12:58,760 Speaker 1: and you get the ends of of the of the 263 00:12:58,960 --> 00:13:02,360 Speaker 1: you know, exuberant on the valuation side, you have to 264 00:13:02,440 --> 00:13:05,840 Speaker 1: bring value investors back into invest in these growth names. 265 00:13:05,880 --> 00:13:08,360 Speaker 1: And some of our favorite growth names are still trading 266 00:13:08,360 --> 00:13:11,559 Speaker 1: at pretty high multiples UM. And so the top the 267 00:13:11,679 --> 00:13:14,720 Speaker 1: top of the market still has risk. Here you can 268 00:13:14,840 --> 00:13:17,520 Speaker 1: see it and how how the overall market and the 269 00:13:17,600 --> 00:13:21,120 Speaker 1: aggregate has has has traded. The Dow versus the nasdack, 270 00:13:21,440 --> 00:13:24,280 Speaker 1: the Dow versus the SMP, and the SMP is overly weighted. 271 00:13:24,600 --> 00:13:28,079 Speaker 1: Top ten names twenty nine of the index a lot 272 00:13:28,160 --> 00:13:31,120 Speaker 1: of those names are still not cheap, and they're still expensive. 273 00:13:31,240 --> 00:13:33,520 Speaker 1: I think Tom Peter to talk about the talk about 274 00:13:35,040 --> 00:13:38,439 Speaker 1: but it's it does make sense though, Uh it does. 275 00:13:38,720 --> 00:13:40,520 Speaker 1: I think that I think that it is a good 276 00:13:40,640 --> 00:13:43,800 Speaker 1: point going forward. Then do you think that the potential 277 00:13:43,880 --> 00:13:46,760 Speaker 1: for contagion is off the table considering that we still 278 00:13:46,840 --> 00:13:50,079 Speaker 1: have potentially more wash out to go here? So I 279 00:13:50,160 --> 00:13:54,080 Speaker 1: think there's still a risk of sovereign debt issues in Europe. 280 00:13:54,200 --> 00:13:56,760 Speaker 1: I think we are not through this winter. We are 281 00:13:56,880 --> 00:13:59,360 Speaker 1: not through the nat gas problem of this winter, and 282 00:13:59,400 --> 00:14:02,880 Speaker 1: then after this winter there's a summer and another winter, 283 00:14:03,640 --> 00:14:07,079 Speaker 1: and I think the markets very shortsighted in piecing this 284 00:14:07,280 --> 00:14:09,559 Speaker 1: through and who's going to be paying for this and 285 00:14:09,679 --> 00:14:12,400 Speaker 1: how it's going to be funded that these are not 286 00:14:12,600 --> 00:14:14,679 Speaker 1: easy questions. And I think this is kind of an 287 00:14:14,720 --> 00:14:17,120 Speaker 1: issue that's been left for dead because it's been a 288 00:14:17,520 --> 00:14:20,800 Speaker 1: warmer than expected autumn in Europe and so the reserves 289 00:14:20,840 --> 00:14:23,640 Speaker 1: are high. But again that's a one winter story. We 290 00:14:23,720 --> 00:14:26,200 Speaker 1: don't have a plan yet moving forward, so I think 291 00:14:26,240 --> 00:14:28,960 Speaker 1: there is some risk there. I think the contagion risk 292 00:14:29,120 --> 00:14:31,760 Speaker 1: is lower, but not dead yet. I think that the 293 00:14:31,840 --> 00:14:36,600 Speaker 1: bitcoin blow up is likely to be contained there clearly 294 00:14:36,720 --> 00:14:39,040 Speaker 1: with some counterparty risk, but I don't think it was 295 00:14:39,080 --> 00:14:42,160 Speaker 1: a big enough asset for it to have huge reverberation. 296 00:14:42,200 --> 00:14:43,800 Speaker 1: I agree with you in Europe, have you got to 297 00:14:43,840 --> 00:14:46,280 Speaker 1: think about why the reserves are where they are? Not stream, 298 00:14:47,040 --> 00:14:48,680 Speaker 1: We're going to have the same ability to build up 299 00:14:48,680 --> 00:14:52,120 Speaker 1: those reserves through next summer. Doesn't seem so, doesn't seem 300 00:14:52,160 --> 00:14:54,440 Speaker 1: so right now? What do you do? Also in an 301 00:14:54,520 --> 00:14:57,840 Speaker 1: economy where the inflation is coming from something completely out 302 00:14:57,880 --> 00:15:01,720 Speaker 1: of control of central banks and even a policymakers because 303 00:15:01,720 --> 00:15:04,600 Speaker 1: it's being it's getting difficult for them to source enough 304 00:15:04,680 --> 00:15:08,440 Speaker 1: natural gas from enough places over the longer term with 305 00:15:09,120 --> 00:15:12,080 Speaker 1: contracts that aren't necessarily ten or twenty years. They worry 306 00:15:12,080 --> 00:15:14,800 Speaker 1: about expectations, They worry about a second round of effects 307 00:15:14,880 --> 00:15:19,720 Speaker 1: of inflation, going into wage negotiations, those kind of things. 308 00:15:19,840 --> 00:15:21,520 Speaker 1: That's a tough spot for the Europeans. It will be 309 00:15:21,600 --> 00:15:23,560 Speaker 1: next year as well, based on where people think the 310 00:15:23,680 --> 00:15:26,560 Speaker 1: energy market's going. Have people priced out some of that 311 00:15:26,720 --> 00:15:30,160 Speaker 1: bear case though? For Europe? Based so much traded I 312 00:15:30,200 --> 00:15:35,600 Speaker 1: mean how much around look, I mean the most you know, 313 00:15:35,720 --> 00:15:39,400 Speaker 1: the most exposed asset over the last decade has rallied enormously. 314 00:15:39,560 --> 00:15:42,520 Speaker 1: So you know, risk assets are back on and the 315 00:15:42,840 --> 00:15:46,360 Speaker 1: the the recovery is getting priced in, and the question 316 00:15:46,600 --> 00:15:50,520 Speaker 1: is is this a bear trap? Right? Is this too early? Um? 317 00:15:50,880 --> 00:15:53,520 Speaker 1: Everybody likes picking the bottom and everybody thinks they have 318 00:15:53,720 --> 00:15:57,240 Speaker 1: the turn. I just think that the net gas, the funding, 319 00:15:57,360 --> 00:16:00,240 Speaker 1: the sovereign debt issue all related in Europe is not 320 00:16:00,440 --> 00:16:02,480 Speaker 1: over yet. And the wage issue, as you point out, 321 00:16:02,520 --> 00:16:04,000 Speaker 1: we have a wage issue here. Let's talk about the 322 00:16:04,040 --> 00:16:07,960 Speaker 1: reil strike. Okay, really quiet? Well, if if if rail 323 00:16:08,000 --> 00:16:11,240 Speaker 1: workers were really concerned about a deepening recession, they probably 324 00:16:11,280 --> 00:16:13,880 Speaker 1: wouldn't be fighting for higher wages the West Coast. Next, 325 00:16:14,560 --> 00:16:17,200 Speaker 1: That's what I'd be asking. The sports negotiations, did they 326 00:16:17,280 --> 00:16:19,720 Speaker 1: break down? I wonder if you're interested in a five 327 00:16:19,800 --> 00:16:22,240 Speaker 1: part dollar bond sale from Amazon at Licia, I wonder 328 00:16:22,240 --> 00:16:24,440 Speaker 1: if that gets your cut? And that headline just crossing 329 00:16:24,480 --> 00:16:26,680 Speaker 1: the Bloomberg Team USA? Did they get it done? Later? 330 00:16:27,360 --> 00:16:31,000 Speaker 1: Did they get it done? Team USA? Such an exciting game? Yes, 331 00:16:31,160 --> 00:16:34,960 Speaker 1: there we go a white man and that's conviction. She's 332 00:16:34,960 --> 00:16:37,480 Speaker 1: fired up, so excited. I'm gonna yes, I'm going to 333 00:16:37,560 --> 00:16:43,360 Speaker 1: say yes to joining US NAN. Please to say, is 334 00:16:43,360 --> 00:16:46,360 Speaker 1: Evan Brown had a multi asset strategy at Upssset Management 335 00:16:46,400 --> 00:16:48,400 Speaker 1: even always fantastic to catch up with you and the team. 336 00:16:48,640 --> 00:16:51,000 Speaker 1: Let's just start with the core theme for you guys, 337 00:16:51,240 --> 00:16:52,840 Speaker 1: which is that you think investors are going to be 338 00:16:52,840 --> 00:16:55,880 Speaker 1: surprised by how resilient this US economy will continue to be, 339 00:16:56,720 --> 00:16:59,400 Speaker 1: perhaps deep into three even you can you walk us 340 00:16:59,440 --> 00:17:01,680 Speaker 1: through the y and for how long you think we 341 00:17:01,760 --> 00:17:07,640 Speaker 1: might be surprised? Yeah, so, I I think the For one, 342 00:17:08,119 --> 00:17:10,560 Speaker 1: we're in an environment where you still have a lot 343 00:17:10,600 --> 00:17:14,359 Speaker 1: of excess savings on household balanties in aggregate, so we 344 00:17:14,480 --> 00:17:18,240 Speaker 1: know that those excess savings are are dwindling somewhat for 345 00:17:18,680 --> 00:17:21,480 Speaker 1: some of the lower earners, but the biggest spenders in 346 00:17:21,520 --> 00:17:24,200 Speaker 1: the economy are higher earners. We still have a very 347 00:17:24,359 --> 00:17:28,520 Speaker 1: tight labor market for those lower earners, lower income earners 348 00:17:29,000 --> 00:17:32,120 Speaker 1: um plus. And I think this is a very big deal. 349 00:17:32,680 --> 00:17:35,080 Speaker 1: A big decline in gasoline prices that's going to be 350 00:17:35,520 --> 00:17:38,320 Speaker 1: a big support for the U. S consumer. You've got 351 00:17:38,440 --> 00:17:41,800 Speaker 1: a Social Security adjustment, costs of living adjustment that's gonna 352 00:17:42,320 --> 00:17:47,520 Speaker 1: effectively boost incomes. The States have a lot of excess 353 00:17:47,560 --> 00:17:52,119 Speaker 1: savings themselves, and there's direct support for consumers coming coming 354 00:17:52,320 --> 00:17:54,920 Speaker 1: through there. So, so what we're talking about is a 355 00:17:54,960 --> 00:17:58,400 Speaker 1: reasonably healthy economy despite all the rate hikes that we've 356 00:17:58,400 --> 00:18:04,040 Speaker 1: seen today. Can you beat a stands constructive on ann X? Yeah, 357 00:18:04,040 --> 00:18:07,439 Speaker 1: I mean I think as inflation comes down, that's going 358 00:18:07,520 --> 00:18:10,879 Speaker 1: to weigh somewhat on on earnings. But I think a 359 00:18:10,960 --> 00:18:13,240 Speaker 1: lot of that is known, right, A lot of that 360 00:18:13,440 --> 00:18:17,360 Speaker 1: even if you haven't seen analyst expectations come down as much. 361 00:18:17,840 --> 00:18:22,320 Speaker 1: Everyone's talking about recession, everyone's talking about earnings coming down, 362 00:18:22,920 --> 00:18:26,760 Speaker 1: and so the surprise is that they hang in there. Right. 363 00:18:26,800 --> 00:18:29,680 Speaker 1: We're not talking about a boom in earnings. They're definitely 364 00:18:29,760 --> 00:18:33,160 Speaker 1: coming down, but we are talking about them just I'm 365 00:18:33,240 --> 00:18:36,560 Speaker 1: hanging in and at this point that's probably enough. Do 366 00:18:36,640 --> 00:18:39,719 Speaker 1: you think we could see the outcome fore flipped from 367 00:18:39,800 --> 00:18:42,160 Speaker 1: what people are expecting, which is a good first half 368 00:18:42,240 --> 00:18:46,280 Speaker 1: and a really bad second half. It could be because 369 00:18:46,359 --> 00:18:50,440 Speaker 1: I do think that the the tightness of the labor 370 00:18:50,520 --> 00:18:53,640 Speaker 1: market can continue, and that's going to keep the Fed 371 00:18:54,119 --> 00:18:56,320 Speaker 1: on edge. There's a lot of narrative right now that, Okay, 372 00:18:56,359 --> 00:19:00,040 Speaker 1: the Fed's gonna do another fifty basis point basis and 373 00:19:00,160 --> 00:19:03,399 Speaker 1: hYP and more or less be be done. But if 374 00:19:03,440 --> 00:19:06,479 Speaker 1: the labor market is staying tight, then there's a bias 375 00:19:06,600 --> 00:19:09,760 Speaker 1: that the FED has to you know, kind of extend 376 00:19:09,880 --> 00:19:13,160 Speaker 1: to do a more a few more basis point. Can 377 00:19:13,240 --> 00:19:15,720 Speaker 1: we get to a five and a half six percent 378 00:19:16,200 --> 00:19:20,720 Speaker 1: expected terminal rate? I think we can, and ultimately, you know, 379 00:19:20,960 --> 00:19:23,160 Speaker 1: that can be the thing that makes the economy crack 380 00:19:23,520 --> 00:19:25,760 Speaker 1: down the road. But it's too early to trade that 381 00:19:26,359 --> 00:19:28,840 Speaker 1: right now. What does that mean in terms of the 382 00:19:28,920 --> 00:19:31,600 Speaker 1: bond trade? Given that so many people hid out in 383 00:19:31,640 --> 00:19:33,720 Speaker 1: the long end, does that mean that that could be 384 00:19:33,920 --> 00:19:36,359 Speaker 1: fine for now and we could see that work for 385 00:19:36,400 --> 00:19:38,600 Speaker 1: another couple of months, But if we go to a 386 00:19:38,760 --> 00:19:42,560 Speaker 1: five to six percent benchmark FED funds rate, all of 387 00:19:42,600 --> 00:19:45,880 Speaker 1: a sudden that trade gets blown up. Yeah. I think 388 00:19:45,920 --> 00:19:47,760 Speaker 1: that's I think that's right. I mean, I do think 389 00:19:47,760 --> 00:19:50,600 Speaker 1: a lot of the bond rally is a result of 390 00:19:51,480 --> 00:19:54,840 Speaker 1: people kind of short covering. Everyone's been short bonds for 391 00:19:54,880 --> 00:19:57,200 Speaker 1: a long time. Uh. And I think a lot of 392 00:19:57,280 --> 00:19:59,880 Speaker 1: it too, has been the round trip that we've seen 393 00:20:00,040 --> 00:20:03,800 Speaker 1: from from the UK transitioning from fiscal stimulus coming from 394 00:20:03,800 --> 00:20:07,359 Speaker 1: the Trust administration to now SUNAC and fiscal austerity. So 395 00:20:07,440 --> 00:20:11,800 Speaker 1: that's putting downward pressure globally on on yields. But all 396 00:20:11,800 --> 00:20:14,119 Speaker 1: of that is kind of played out and now and 397 00:20:14,200 --> 00:20:16,840 Speaker 1: now we get to the point where you know, growth 398 00:20:16,960 --> 00:20:20,199 Speaker 1: is okay, inflation is sticky, fed might be doing more 399 00:20:20,280 --> 00:20:22,680 Speaker 1: than people expect. And then right out there you have 400 00:20:22,760 --> 00:20:25,760 Speaker 1: the Bank of the Japan right which which at some 401 00:20:25,960 --> 00:20:28,239 Speaker 1: point next year, probably in the first half, is going 402 00:20:28,280 --> 00:20:30,920 Speaker 1: to be adjusting. And even if that's kind of known, 403 00:20:31,800 --> 00:20:34,800 Speaker 1: that's really the last anchor that there is on bond yield. 404 00:20:34,840 --> 00:20:37,960 Speaker 1: So I think almost even psychologically, that's going to be 405 00:20:38,560 --> 00:20:41,600 Speaker 1: injecting some term premium and bomb markets and perhaps leading 406 00:20:41,680 --> 00:20:45,800 Speaker 1: to a renewed sell off and uh in duration. Even 407 00:20:45,840 --> 00:20:47,320 Speaker 1: if that's the case, where does that leave the dollar? 408 00:20:47,359 --> 00:20:49,680 Speaker 1: Trite because I pick up on cable you mentioned the 409 00:20:49,800 --> 00:20:52,920 Speaker 1: UK that went from one oh three fifty intraday loads 410 00:20:52,960 --> 00:20:56,720 Speaker 1: of the year on September one, twenty right now. Similarly, 411 00:20:57,000 --> 00:20:59,960 Speaker 1: we've had a turnaround in europe dollar as well at least, 412 00:21:00,000 --> 00:21:03,680 Speaker 1: and that don't the strength can kick back into Yeah, 413 00:21:03,720 --> 00:21:07,040 Speaker 1: I think it'll it will kick back in, but not 414 00:21:07,240 --> 00:21:09,800 Speaker 1: to the same extent that that we've seen for the 415 00:21:10,000 --> 00:21:12,760 Speaker 1: bulk of this year. And the reason being that Europe, 416 00:21:13,320 --> 00:21:16,000 Speaker 1: you know, the we all know that they're in recession, 417 00:21:16,080 --> 00:21:18,159 Speaker 1: are about to be in recession. They're going to be 418 00:21:18,200 --> 00:21:20,800 Speaker 1: bouncing back. In fact, you're already seeing the confidence measure, 419 00:21:20,880 --> 00:21:25,120 Speaker 1: consumer confidence, business confidence measure statilize and in some cases turn. 420 00:21:25,240 --> 00:21:27,600 Speaker 1: So you should get on a forward looking basis, a 421 00:21:27,640 --> 00:21:30,600 Speaker 1: little bit of bounced from from your China. The path 422 00:21:30,760 --> 00:21:36,040 Speaker 1: is bumpy bumpy, leaving zero COVID, but the destination is reopening. 423 00:21:36,040 --> 00:21:38,120 Speaker 1: I mean they're going to have to reopen in order 424 00:21:38,200 --> 00:21:42,240 Speaker 1: to make sure that the economy uh just doesn't completely 425 00:21:42,640 --> 00:21:45,280 Speaker 1: fall apart, and that that the government has the tax 426 00:21:45,400 --> 00:21:51,680 Speaker 1: revenues to actually kind of uh pursue their policies on 427 00:21:51,880 --> 00:21:55,520 Speaker 1: on common prosperity and redistribution and the like. So the 428 00:21:55,840 --> 00:21:58,840 Speaker 1: current situation is unsustainable in China, and so we'll pick 429 00:21:58,880 --> 00:22:01,320 Speaker 1: up there. So if you're getting, you know, more support 430 00:22:01,359 --> 00:22:05,119 Speaker 1: from Europe, more support from China, it's not just a 431 00:22:05,680 --> 00:22:09,359 Speaker 1: US riven economic story. Having final forecast, we want from you. 432 00:22:09,760 --> 00:22:13,720 Speaker 1: Team USA against Iran two pm Eastern time. What's the score? 433 00:22:15,160 --> 00:22:18,080 Speaker 1: The US is going to win to one. That's you 434 00:22:18,160 --> 00:22:21,920 Speaker 1: can count on that, and we go Ubs. You see, 435 00:22:21,960 --> 00:22:24,399 Speaker 1: Ubs likes to play ball. What was pimcom about earlier? 436 00:22:25,520 --> 00:22:39,760 Speaker 1: They're playing a different baseball Banter joining us with silk Is, 437 00:22:39,800 --> 00:22:42,200 Speaker 1: the head of European f X strategy over its city said, 438 00:22:42,240 --> 00:22:44,240 Speaker 1: it was great to catch up with you. Let's talk 439 00:22:44,280 --> 00:22:46,440 Speaker 1: about what went right, or rather what went wrong for 440 00:22:46,520 --> 00:22:49,119 Speaker 1: some of these calls around sterling, which is now pushed 441 00:22:49,119 --> 00:22:52,680 Speaker 1: through one twenty. Well. Look, I think first of all, 442 00:22:53,280 --> 00:22:54,960 Speaker 1: there has been a fandom in the reason in the 443 00:22:55,040 --> 00:22:57,480 Speaker 1: sense that there has been the pricing out of the 444 00:22:57,920 --> 00:23:02,840 Speaker 1: excessive risk premium UH related to the fiscal policies that 445 00:23:03,000 --> 00:23:06,639 Speaker 1: we're basically announced back at the end of September. And 446 00:23:06,760 --> 00:23:08,840 Speaker 1: the second thing, you know, during that period there was 447 00:23:08,880 --> 00:23:13,040 Speaker 1: an enormous build up of sterling shorts UM and given 448 00:23:13,040 --> 00:23:15,800 Speaker 1: the fact that we are now in an environment of 449 00:23:16,200 --> 00:23:20,400 Speaker 1: relative dollar weakness, sterling has pushed higher and you get 450 00:23:20,440 --> 00:23:23,840 Speaker 1: the unwinding of the sterling shorts. As far as I mean, 451 00:23:24,160 --> 00:23:26,119 Speaker 1: if you want to get the direction of sterling, it 452 00:23:26,160 --> 00:23:28,560 Speaker 1: wouldn't be looking at cable, because cable it's going to 453 00:23:28,640 --> 00:23:31,120 Speaker 1: be the mirror image of what the dollar is doing. 454 00:23:31,200 --> 00:23:34,320 Speaker 1: It's got to bet at the dollar around one, I 455 00:23:34,359 --> 00:23:37,200 Speaker 1: would be mostly looking at euro Sterling, and you know, 456 00:23:37,280 --> 00:23:39,399 Speaker 1: I have to say, I'm quite surprised that it's still 457 00:23:39,640 --> 00:23:43,879 Speaker 1: hovering around eight six, So you would reload sterling shorts 458 00:23:44,280 --> 00:23:48,879 Speaker 1: but against the euro yes, absolutely, But the the the 459 00:23:49,040 --> 00:23:51,720 Speaker 1: trigger point for me to do that is that I 460 00:23:51,960 --> 00:23:54,480 Speaker 1: think we need to reach a point at which positioning, 461 00:23:54,640 --> 00:23:58,720 Speaker 1: especially by their speculative community, is reaching relatively neutral levels. 462 00:23:58,960 --> 00:24:01,000 Speaker 1: We're getting quite close used to that if you look 463 00:24:01,040 --> 00:24:04,320 Speaker 1: at the SFETYC data as well as our proprietary in 464 00:24:04,400 --> 00:24:07,560 Speaker 1: this is UM. But I'm quite confident in that call 465 00:24:07,640 --> 00:24:09,960 Speaker 1: for yours certainly higher. How much are you trying to 466 00:24:10,040 --> 00:24:12,120 Speaker 1: move away from the dollar just in general in terms 467 00:24:12,160 --> 00:24:15,120 Speaker 1: of your crosses, your pairs, simply because the dollar story 468 00:24:15,240 --> 00:24:19,400 Speaker 1: has been a so dominant and be so unpredictable. UM. 469 00:24:20,920 --> 00:24:25,280 Speaker 1: I think to twenty three is going to be a 470 00:24:25,400 --> 00:24:29,639 Speaker 1: year in which relative value is going to make sense 471 00:24:29,680 --> 00:24:31,560 Speaker 1: from a trading perspective, and I think by far the 472 00:24:31,600 --> 00:24:34,920 Speaker 1: biggest thing is going to be the housing market on 473 00:24:35,000 --> 00:24:37,720 Speaker 1: the back of very strong monetary policy tightening. One needs 474 00:24:37,760 --> 00:24:41,639 Speaker 1: to identify the places where housing markets are most vulnerable, 475 00:24:42,080 --> 00:24:44,280 Speaker 1: UH and in US at least in Europe if you look, 476 00:24:44,960 --> 00:24:48,600 Speaker 1: Sweden and the UK are by far the most vulnerable ones. 477 00:24:49,600 --> 00:24:52,359 Speaker 1: But aside proble, and I'd like to add that as 478 00:24:52,400 --> 00:24:55,080 Speaker 1: far as the dollar call is concerned, I have to 479 00:24:55,160 --> 00:24:57,639 Speaker 1: say that I'm inclined to believe that we're an inflection 480 00:24:57,720 --> 00:25:00,440 Speaker 1: point in the dollar. It's the FED, and it's also 481 00:25:00,600 --> 00:25:03,800 Speaker 1: the elephant in the room, which is China inflection point 482 00:25:03,960 --> 00:25:06,200 Speaker 1: to a week or do a weaker dollar. Yes, I 483 00:25:06,280 --> 00:25:09,280 Speaker 1: think if you identify the state the different states of 484 00:25:09,359 --> 00:25:11,800 Speaker 1: the world, what really matters for the dollar is basically 485 00:25:11,880 --> 00:25:13,880 Speaker 1: what the Fed is doing, but also what global growth 486 00:25:14,000 --> 00:25:18,879 Speaker 1: is doing. And I think the market is sniffing that. Basically, 487 00:25:19,080 --> 00:25:20,800 Speaker 1: the genie is out of the bottle. As far as 488 00:25:20,920 --> 00:25:23,560 Speaker 1: China reopening is concerned. So what you think happens with China? 489 00:25:24,000 --> 00:25:26,840 Speaker 1: What's your basic case? Do you think full reopening? Well, 490 00:25:27,000 --> 00:25:30,359 Speaker 1: it depends what you mean full reopening. I think there 491 00:25:30,480 --> 00:25:33,440 Speaker 1: is going to be a very gradual reopening because it's 492 00:25:33,480 --> 00:25:36,159 Speaker 1: not in the authority's interest to do it overnight and 493 00:25:36,520 --> 00:25:39,200 Speaker 1: very very quickly. Um, there are a lot of political 494 00:25:39,240 --> 00:25:41,560 Speaker 1: sensitivity is in that respect, So I think there's going 495 00:25:41,600 --> 00:25:43,960 Speaker 1: to be a very gradual reopening. We also have the 496 00:25:44,119 --> 00:25:47,440 Speaker 1: very comprehensive property package, which is putting a floor underneath 497 00:25:47,840 --> 00:25:53,119 Speaker 1: property prices, which will really some consumption impact by the 498 00:25:53,200 --> 00:25:56,639 Speaker 1: wealth effected potentially is going to start putting some upside 499 00:25:56,680 --> 00:26:00,360 Speaker 1: pressure on Chinese imports. But you know what it's it's 500 00:26:01,320 --> 00:26:02,919 Speaker 1: I think the genie is out of the bottle as 501 00:26:02,960 --> 00:26:04,560 Speaker 1: far as China is concernant. What do you think the 502 00:26:04,640 --> 00:26:08,440 Speaker 1: best China proxy is to push that view through? You're 503 00:26:08,480 --> 00:26:12,240 Speaker 1: a China You're a web side. And the reason for 504 00:26:12,320 --> 00:26:16,200 Speaker 1: that is at the initial stage of the gradual reopening, 505 00:26:16,240 --> 00:26:18,840 Speaker 1: you're going to see an increase in inputs by China, 506 00:26:18,920 --> 00:26:21,320 Speaker 1: which means that you're going to have a deterioration in 507 00:26:21,400 --> 00:26:23,520 Speaker 1: the current account of China, and on the flip side, 508 00:26:23,560 --> 00:26:25,879 Speaker 1: you're going to start having a positive impact on the 509 00:26:25,920 --> 00:26:31,000 Speaker 1: car account for Eurozone and in general, everything that basically 510 00:26:31,200 --> 00:26:36,159 Speaker 1: increases activity from China and Asia more generally is going 511 00:26:36,200 --> 00:26:38,000 Speaker 1: to be good for the euro So e're China, I 512 00:26:38,040 --> 00:26:41,960 Speaker 1: think is it would be my best trade for expressing that. 513 00:26:42,240 --> 00:26:44,320 Speaker 1: Can you pair this into what you were talking about 514 00:26:44,359 --> 00:26:47,560 Speaker 1: earlier about the housing market and how that dictates the 515 00:26:47,680 --> 00:26:50,320 Speaker 1: future of certain nations New point of Sweden and the 516 00:26:50,520 --> 00:26:55,879 Speaker 1: UK transit walk us through how a very weak housing market, 517 00:26:56,000 --> 00:26:59,879 Speaker 1: what kind of deterioration you're expecting to really bleed in 518 00:27:00,119 --> 00:27:06,600 Speaker 1: to currency weakness? Well, as far as them a direct impact, 519 00:27:06,840 --> 00:27:10,560 Speaker 1: that's a direct impact into economic growth and therefore there's 520 00:27:10,640 --> 00:27:15,159 Speaker 1: direct impact consumption and there's direct impact therefore two central 521 00:27:15,200 --> 00:27:18,600 Speaker 1: bank decisions. We at the Bank of England is very 522 00:27:18,640 --> 00:27:20,600 Speaker 1: much aware of the properties in the housing market and 523 00:27:20,680 --> 00:27:23,280 Speaker 1: that's why it puts a lot of weight and growth 524 00:27:23,400 --> 00:27:26,240 Speaker 1: right now, and that is why it seems a likely 525 00:27:26,359 --> 00:27:29,040 Speaker 1: at least to us that it's going to validate market expectations. 526 00:27:29,440 --> 00:27:33,160 Speaker 1: Now why these places are much more vulnerable. I mean 527 00:27:33,240 --> 00:27:36,240 Speaker 1: in the UK you have to understand in vast comparison, 528 00:27:36,880 --> 00:27:40,879 Speaker 1: uh within in in a great difference with the US, 529 00:27:40,960 --> 00:27:43,879 Speaker 1: where here you have thirty year fixed rate mortgages. In 530 00:27:43,960 --> 00:27:46,360 Speaker 1: the UK you have two year, five year a fixed 531 00:27:46,440 --> 00:27:48,600 Speaker 1: rate mortgages, which means that every point in time you 532 00:27:48,680 --> 00:27:52,040 Speaker 1: get a bigger, big percentage of the population going out 533 00:27:52,119 --> 00:27:56,159 Speaker 1: that refinance. So you know, just compare it. You have 534 00:27:56,680 --> 00:28:00,320 Speaker 1: had about two to an a half percent mortgage rates 535 00:28:01,160 --> 00:28:04,399 Speaker 1: in the past ten years. Right now you're potentially going 536 00:28:04,440 --> 00:28:07,600 Speaker 1: to gravity to six and a half to seven. So 537 00:28:08,760 --> 00:28:11,200 Speaker 1: it's going to be a major major hit. It's gonna 538 00:28:11,200 --> 00:28:14,240 Speaker 1: be very so you're seeing the numbers already. UK market approvals. Yes, 539 00:28:14,280 --> 00:28:17,560 Speaker 1: I think the lowest sense COVID nineteen. How bad do 540 00:28:17,600 --> 00:28:18,800 Speaker 1: you think this is going to get and has a 541 00:28:18,880 --> 00:28:20,840 Speaker 1: market in the UK? My view is that it's going 542 00:28:20,880 --> 00:28:24,320 Speaker 1: to get very bad. And the other issue that the 543 00:28:24,440 --> 00:28:28,280 Speaker 1: UK is are facing is that it's actually facing a 544 00:28:28,359 --> 00:28:32,119 Speaker 1: more structural problem into the inflation outlook compared to the 545 00:28:32,160 --> 00:28:34,320 Speaker 1: rest of the world. And the reason for that, um, 546 00:28:34,640 --> 00:28:36,520 Speaker 1: you know we've said that. I think it's to a 547 00:28:36,640 --> 00:28:39,880 Speaker 1: large extent related to Brexit and and as a result 548 00:28:39,960 --> 00:28:44,200 Speaker 1: of this, it will put the Bank of England in 549 00:28:44,280 --> 00:28:47,600 Speaker 1: a much much more difficult spot compared to other central banks. 550 00:28:47,840 --> 00:28:52,040 Speaker 1: It will be faced with a structurally higher inflation and 551 00:28:52,160 --> 00:28:56,200 Speaker 1: a much faster deteriorate in economy. Governor Bailey speaking a 552 00:28:56,240 --> 00:28:59,120 Speaker 1: little bit lightly this morning ten am intent time, yeah 553 00:28:59,160 --> 00:29:01,240 Speaker 1: to the House of Lords. How much does he discuss 554 00:29:01,680 --> 00:29:04,920 Speaker 1: the ramifications on the housing market that could be decimated 555 00:29:04,960 --> 00:29:06,760 Speaker 1: but not just because of interest rates but also just 556 00:29:06,880 --> 00:29:12,520 Speaker 1: because general economy And did Goldman Sachs moving of Theirs 557 00:29:12,600 --> 00:29:16,200 Speaker 1: of London to Milan partly because of this? But look, 558 00:29:16,320 --> 00:29:19,720 Speaker 1: I think what was really imprecedented was in during the 559 00:29:19,800 --> 00:29:24,000 Speaker 1: last press conference by the Bank of England, Bailey actually said, um, 560 00:29:24,400 --> 00:29:28,600 Speaker 1: I hope that the market is getting the message and 561 00:29:28,720 --> 00:29:33,200 Speaker 1: mortgage rates are going to go lower after an interest 562 00:29:33,320 --> 00:29:35,640 Speaker 1: rate hike. I found it confusing from the bank aving 563 00:29:35,680 --> 00:29:39,040 Speaker 1: that at times I I don't know visit Akisss City, 564 00:29:39,360 --> 00:29:42,120 Speaker 1: it's quite to cash up set. Thank you wonderful. This 565 00:29:42,280 --> 00:29:46,040 Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us 566 00:29:46,120 --> 00:29:49,880 Speaker 1: live weekdays from seven to ten am Eastern on Bloomberg 567 00:29:49,960 --> 00:29:53,760 Speaker 1: Radio and on Bloomberg Television each day from six to 568 00:29:53,920 --> 00:29:58,560 Speaker 1: nine am for insight from the best in economics, finance, investment, 569 00:29:58,760 --> 00:30:03,360 Speaker 1: and international relation Jan's and subscribe to the Surveillance podcast 570 00:30:03,680 --> 00:30:07,240 Speaker 1: on Apple podcast, SoundCloud, Bloomberg dot com, and of course 571 00:30:07,600 --> 00:30:11,880 Speaker 1: on the terminal. I'm Tom keene In. This is Bloomberg 572 00:30:19,240 --> 00:30:19,280 Speaker 1: m