1 00:00:00,080 --> 00:00:02,600 Speaker 1: Let's get to Ben Emmon's Managing director of Global macro 2 00:00:02,800 --> 00:00:07,160 Speaker 1: Strategy at Medley Global Advisors. Ben A. FED Bank of 3 00:00:07,160 --> 00:00:12,240 Speaker 1: Minneapolis President Neil kash Kari reminded investors that the Fed's 4 00:00:12,320 --> 00:00:15,360 Speaker 1: goal is not to get inflation to roll over and 5 00:00:15,440 --> 00:00:20,000 Speaker 1: start heading down, but rather to crush it, to eviscerated, 6 00:00:20,040 --> 00:00:22,360 Speaker 1: to get it back down to two percent. So if 7 00:00:22,400 --> 00:00:25,880 Speaker 1: you're banking on the FED to get warm and cuddley 8 00:00:25,920 --> 00:00:30,880 Speaker 1: anytime soon, think again. I think he's right, Brian, because 9 00:00:30,960 --> 00:00:33,400 Speaker 1: you know, I think that that was the big misinterpretation 10 00:00:33,520 --> 00:00:35,680 Speaker 1: last week. You know, as much as Paul may have 11 00:00:35,760 --> 00:00:38,520 Speaker 1: set at the FED is at neutral, we really meant 12 00:00:38,520 --> 00:00:40,839 Speaker 1: to say, exactly, we're now at a rate where in 13 00:00:40,880 --> 00:00:44,040 Speaker 1: the past inflation was at two percent below. Clearly we're 14 00:00:44,040 --> 00:00:47,080 Speaker 1: not in that situation. Inflation much higher. You look at 15 00:00:47,080 --> 00:00:51,000 Speaker 1: the trim mean from Dallas Fed on Friday, there was 16 00:00:51,000 --> 00:00:54,360 Speaker 1: actually very alarming there's those all those trim means are 17 00:00:54,440 --> 00:00:58,200 Speaker 1: rising much faster. So an input of those trim means 18 00:00:58,200 --> 00:01:02,520 Speaker 1: into Ballars model that he's pitchings is able. Actually analysis 19 00:01:02,560 --> 00:01:04,520 Speaker 1: the fat pons rate should be four and a half percent. 20 00:01:04,959 --> 00:01:07,440 Speaker 1: So that's too scarish. Point. Who is by the way, 21 00:01:07,440 --> 00:01:10,160 Speaker 1: the only one projecting that kind of a rate closer 22 00:01:10,200 --> 00:01:12,080 Speaker 1: to that rate at the end of this year. You know, 23 00:01:12,200 --> 00:01:14,840 Speaker 1: I had I had a tag on that question that 24 00:01:14,920 --> 00:01:17,240 Speaker 1: I didn't put in because I was concerned about time. 25 00:01:17,240 --> 00:01:20,240 Speaker 1: But I want to mention it. Uh economics thinks the 26 00:01:20,319 --> 00:01:23,920 Speaker 1: terminal rate is five percent or will be yeah, and 27 00:01:23,959 --> 00:01:26,039 Speaker 1: you know that could well be Brian, like you know 28 00:01:26,160 --> 00:01:28,959 Speaker 1: this disinflation data is not healthy at all by the 29 00:01:29,000 --> 00:01:32,240 Speaker 1: acceleration in those core measures. So you know what took 30 00:01:32,240 --> 00:01:34,479 Speaker 1: a scarish point. You gotta crush that, you gotta bring 31 00:01:34,480 --> 00:01:36,600 Speaker 1: it down. Wall Or said the same thing. We are 32 00:01:36,640 --> 00:01:39,360 Speaker 1: not satisfied with inflation back to three four percent. It 33 00:01:39,480 --> 00:01:42,280 Speaker 1: must be too. So I think this was the misunderstanding 34 00:01:42,360 --> 00:01:44,760 Speaker 1: last week in the in the markets, thinking the feat 35 00:01:44,840 --> 00:01:47,720 Speaker 1: is closer to his end. It's not right, it's it's 36 00:01:47,720 --> 00:01:50,800 Speaker 1: maybe at the middle of that cycle, right, And therefore 37 00:01:51,440 --> 00:01:53,680 Speaker 1: I think the front of the U curve looks in 38 00:01:53,680 --> 00:01:56,280 Speaker 1: that regard miss price as I say, like it looks 39 00:01:56,360 --> 00:01:58,560 Speaker 1: too low for where the fat will be heading to. 40 00:02:00,000 --> 00:02:02,320 Speaker 1: How do they know? Ultimately this is the thing. I mean, 41 00:02:02,360 --> 00:02:06,320 Speaker 1: this is uncharted terrain, is it not been? It is 42 00:02:06,400 --> 00:02:09,519 Speaker 1: uncharted rage, But I think that that you know, back 43 00:02:09,560 --> 00:02:12,760 Speaker 1: in twenty fifteen and they lift off, inflation was perhaps 44 00:02:12,840 --> 00:02:16,240 Speaker 1: too low at that time, very modest, and they took 45 00:02:16,280 --> 00:02:20,120 Speaker 1: some preemptive measures in order to say, well, we want 46 00:02:20,120 --> 00:02:22,600 Speaker 1: to avoid something that now is happening today, right is 47 00:02:22,639 --> 00:02:27,680 Speaker 1: in an acceleration inflation. So today it's a really different situation. 48 00:02:27,800 --> 00:02:30,440 Speaker 1: We you know, we're coming out of this pandemic and 49 00:02:30,840 --> 00:02:34,000 Speaker 1: dealing with this residual of inflation. And I think here's 50 00:02:34,000 --> 00:02:36,720 Speaker 1: where the challenges for the fact that you cannot just 51 00:02:37,160 --> 00:02:40,359 Speaker 1: back away from that too soon. And so the seventies 52 00:02:40,360 --> 00:02:42,600 Speaker 1: is one experience, but the other experiences is in the 53 00:02:42,639 --> 00:02:45,799 Speaker 1: two thousands. I think they're gonna continue. They're gonna continue 54 00:02:45,840 --> 00:02:49,480 Speaker 1: with this rate nex. There's so much tension out there 55 00:02:49,520 --> 00:02:52,600 Speaker 1: at the moment in bond and equity markets. It's almost 56 00:02:52,639 --> 00:02:55,959 Speaker 1: a sense of something's going to give it some stage. 57 00:02:56,160 --> 00:03:01,400 Speaker 1: What you gut feeling. Ben Got really tells me Rich 58 00:03:01,520 --> 00:03:04,000 Speaker 1: that that the bond market does have it a bit 59 00:03:04,080 --> 00:03:06,040 Speaker 1: wrong this time. I think that that this kind of 60 00:03:06,120 --> 00:03:09,880 Speaker 1: too quick and end to inflation. On the equity side, however, 61 00:03:10,040 --> 00:03:12,519 Speaker 1: there there was a fair bit of discounting of the 62 00:03:12,600 --> 00:03:15,760 Speaker 1: recession scenario that happened in the first half, so that 63 00:03:15,919 --> 00:03:20,280 Speaker 1: that rebound is ongoing currently maybe except for today is 64 00:03:20,360 --> 00:03:23,360 Speaker 1: I think more logical, but bonds have I think moved 65 00:03:23,400 --> 00:03:25,440 Speaker 1: too quick down. So I think that's where the tension is. 66 00:03:25,919 --> 00:03:28,440 Speaker 1: As we were discussing earlier, it really will be the 67 00:03:28,480 --> 00:03:31,400 Speaker 1: direction again by the Federal Reserve indicating you know, we're 68 00:03:31,400 --> 00:03:33,440 Speaker 1: going to have to continue with the higher rates and 69 00:03:33,720 --> 00:03:36,360 Speaker 1: that you cannot stay this low with treasury us of 70 00:03:36,360 --> 00:03:40,080 Speaker 1: where we are right now. Yeah, it's perplexing to have 71 00:03:40,200 --> 00:03:42,839 Speaker 1: the tenure at two point six foc with the fair 72 00:03:42,920 --> 00:03:46,480 Speaker 1: dis aggressive. What what is the essential message and how 73 00:03:46,560 --> 00:03:50,920 Speaker 1: different is it from the stock market. Maybe the one 74 00:03:51,000 --> 00:03:55,120 Speaker 1: message is that people buy bonds at these these levels 75 00:03:55,360 --> 00:03:59,200 Speaker 1: feel that you really do get a completely different picture 76 00:03:59,200 --> 00:04:02,560 Speaker 1: in inflation of the fetist projecting. Right, they're looking at commodities, 77 00:04:02,600 --> 00:04:05,440 Speaker 1: they're looking at basically the housing market and all the 78 00:04:05,480 --> 00:04:08,800 Speaker 1: four looking indicators, and they're based upon their pre pandemic 79 00:04:08,920 --> 00:04:11,960 Speaker 1: models and say there's going to be a crash in inflation, 80 00:04:12,600 --> 00:04:16,360 Speaker 1: and yeah, that's I think not the right calculation. You know, yes, 81 00:04:16,440 --> 00:04:18,680 Speaker 1: we're gonna have slower activity. The I s M data 82 00:04:18,800 --> 00:04:21,120 Speaker 1: this week coming up will be a big focus point. 83 00:04:21,600 --> 00:04:23,720 Speaker 1: They will not be a fore bod of recession and 84 00:04:23,839 --> 00:04:26,520 Speaker 1: more ultimately confirmed that we may have been in a recession, 85 00:04:27,160 --> 00:04:29,120 Speaker 1: but we're not dealing with the same inflation rate. I 86 00:04:29,160 --> 00:04:32,840 Speaker 1: think that could teas to be the puzzle here. It 87 00:04:32,960 --> 00:04:35,800 Speaker 1: must be reflected into higher rates until the fat gets 88 00:04:35,880 --> 00:04:39,440 Speaker 1: more incredibly inflation under control, which is not there at 89 00:04:39,440 --> 00:04:42,600 Speaker 1: that stage. And based upon that data from Friday, that 90 00:04:42,760 --> 00:04:45,880 Speaker 1: was I thought very alarming from the Dallas fat to 91 00:04:45,920 --> 00:04:49,680 Speaker 1: trimming data. I mean, in in the contact you're talking 92 00:04:49,720 --> 00:04:51,840 Speaker 1: about here, Ben, you know, we look at cp I, 93 00:04:52,040 --> 00:04:53,799 Speaker 1: we look at pc which is one of their favorites, 94 00:04:53,839 --> 00:04:55,640 Speaker 1: but they've got to look beyond that. I mean, of 95 00:04:55,720 --> 00:04:58,120 Speaker 1: course they look at the employment figures, of course, but 96 00:04:58,240 --> 00:04:59,920 Speaker 1: you know the p m MY numbers that also take 97 00:05:00,480 --> 00:05:04,360 Speaker 1: more and more center stage they do. And look, the 98 00:05:04,920 --> 00:05:08,120 Speaker 1: regional data has come out so far shows very mixed 99 00:05:08,160 --> 00:05:11,599 Speaker 1: in that weak picture good indication with I assemble show 100 00:05:11,680 --> 00:05:14,600 Speaker 1: next week, so that they are those both manufacturing and 101 00:05:14,680 --> 00:05:18,040 Speaker 1: serviceable decline. I think that's quite clear, and it may 102 00:05:18,040 --> 00:05:20,479 Speaker 1: also be a little bit of the movement that yields 103 00:05:20,520 --> 00:05:24,360 Speaker 1: that to reflect that um. But then it's not like 104 00:05:24,960 --> 00:05:28,960 Speaker 1: imminent major recessions yet I think that's the difference, and 105 00:05:29,040 --> 00:05:32,040 Speaker 1: therefore the U curve inversion is really more about we 106 00:05:32,160 --> 00:05:35,160 Speaker 1: have to drive policy tighter to combat invation. That that 107 00:05:35,240 --> 00:05:37,640 Speaker 1: we're dealing with the recession right now. That's I think 108 00:05:37,720 --> 00:05:41,240 Speaker 1: that the tension there. So you know, the economy is 109 00:05:41,279 --> 00:05:43,360 Speaker 1: on as on a as on as slowdown, that's clear, 110 00:05:43,520 --> 00:05:47,000 Speaker 1: but it's not a recession. Let's talk about China for 111 00:05:47,080 --> 00:05:50,680 Speaker 1: a moment. We had the pullit Bureau promising no new stimulution, 112 00:05:50,800 --> 00:05:56,120 Speaker 1: and immediately we get manufacturing contracting. So I guess you 113 00:05:56,200 --> 00:05:58,520 Speaker 1: know it's worth asking the question. And if you are 114 00:05:58,600 --> 00:06:04,200 Speaker 1: asking the question, you know what what what holds growth 115 00:06:04,640 --> 00:06:07,880 Speaker 1: or COVID policy? It's pretty clear the answers COVID policy. 116 00:06:08,480 --> 00:06:11,279 Speaker 1: How detrimental is that likely to be for China? Along 117 00:06:11,360 --> 00:06:15,560 Speaker 1: with the housing crisis, I certainly put that economy at 118 00:06:16,120 --> 00:06:18,480 Speaker 1: a bigger challenge than maybe people have thoughts. You know, 119 00:06:18,600 --> 00:06:20,880 Speaker 1: there was a period of time in the last sort 120 00:06:20,880 --> 00:06:23,479 Speaker 1: of two months that views on that we have maybe 121 00:06:23,600 --> 00:06:26,240 Speaker 1: more flexible policy around COVID. That turned out not to 122 00:06:26,320 --> 00:06:30,240 Speaker 1: be the case right there, clearly continue to follow restrictive policy, 123 00:06:30,960 --> 00:06:34,880 Speaker 1: and then that means zero COVID will go on into three. 124 00:06:35,520 --> 00:06:37,440 Speaker 1: And that's the case, then the five and a half 125 00:06:37,520 --> 00:06:40,359 Speaker 1: percent growth rate, which was not mentioned by the Polyboro 126 00:06:40,560 --> 00:06:43,599 Speaker 1: last weekends, meaning will also then not be met. Right 127 00:06:43,680 --> 00:06:46,920 Speaker 1: that that target will probably be more of a medium target. 128 00:06:47,480 --> 00:06:50,640 Speaker 1: So an economy that is as challenged by the virus 129 00:06:50,800 --> 00:06:53,760 Speaker 1: is any other economy, and therefore the reopening of the 130 00:06:53,839 --> 00:06:57,200 Speaker 1: economy is also delayed save food reopening, right, and I 131 00:06:57,240 --> 00:06:59,040 Speaker 1: think that's that's still a big deal in the future, 132 00:06:59,120 --> 00:07:02,240 Speaker 1: but not for the up Okay, Ben, thanks very much 133 00:07:02,240 --> 00:07:04,640 Speaker 1: for joining us on your Sunday evening there. Ben Emmon's 134 00:07:04,680 --> 00:07:09,000 Speaker 1: managing director of Global macro Strategy at Medley Global Advisors.