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 --> 00:00:13,160
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

3
00:00:13,280 --> 00:00:18,600
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,840 --> 00:00:23,560
Speaker 1: To find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot

5
00:00:23,560 --> 00:00:30,080
Speaker 1: Com and of course on the Bloomberg terminal right now.

6
00:00:30,080 --> 00:00:33,599
Speaker 1: And this is critically important with hindsight to look back

7
00:00:33,640 --> 00:00:37,560
Speaker 1: at somebody who nailed the last great moment of the bullmarket.

8
00:00:37,640 --> 00:00:40,720
Speaker 1: John Gollob and Credit Sweets had the courage to come

9
00:00:40,720 --> 00:00:43,480
Speaker 1: out with a Barbell strategy which was blah blah blah

10
00:00:43,560 --> 00:00:46,720
Speaker 1: blah blah and don't give up on a big text.

11
00:00:47,280 --> 00:00:50,480
Speaker 1: He was a genius. The genius joins us this morning.

12
00:00:50,560 --> 00:00:53,920
Speaker 1: John Gollob is head of US equity Strategy and quantitative

13
00:00:53,920 --> 00:00:57,960
Speaker 1: research for Credit at Sweets. Now, what John, you know,

14
00:00:58,000 --> 00:01:00,960
Speaker 1: if I if I have Amazon, Apple, what ever, and

15
00:01:01,000 --> 00:01:04,720
Speaker 1: I'm gonna hold them, what is the prescription to recover?

16
00:01:06,040 --> 00:01:08,840
Speaker 1: You know, Tom, we actually think that in a high

17
00:01:08,920 --> 00:01:13,440
Speaker 1: inflation environment that tech just doesn't do as well. So

18
00:01:13,840 --> 00:01:17,479
Speaker 1: it's interesting we we've been table pounding on tech throughout

19
00:01:17,600 --> 00:01:19,840
Speaker 1: the last couple of years, but as we rolled into

20
00:01:19,920 --> 00:01:22,760
Speaker 1: this year, we didn't say short that we said basically

21
00:01:22,800 --> 00:01:25,880
Speaker 1: good of neutral, because as long as the cycle continues

22
00:01:25,920 --> 00:01:29,520
Speaker 1: to be inflationary, they just struggle a little bit more.

23
00:01:30,040 --> 00:01:32,240
Speaker 1: And what we actually see, and we've done a whole

24
00:01:32,240 --> 00:01:35,640
Speaker 1: bunch of qualt work around this, is that when inflation

25
00:01:35,760 --> 00:01:38,959
Speaker 1: is high and stubbornly high, you actually want to be

26
00:01:39,080 --> 00:01:43,240
Speaker 1: in stuff that's more cyclical beneficiaries of this, so energy stocks,

27
00:01:43,319 --> 00:01:45,520
Speaker 1: material stocks and the like. Not because these are the

28
00:01:45,600 --> 00:01:48,680
Speaker 1: best stocks forever, but they're the best stocks for the moment.

29
00:01:49,200 --> 00:01:55,560
Speaker 1: Will those tech stocks continue to have revenue growth? Um? Yeah,

30
00:01:55,640 --> 00:01:57,760
Speaker 1: But if you take a look like in the last

31
00:01:58,200 --> 00:02:02,240
Speaker 1: let's say the most recent earnings sea season, tech names, um,

32
00:02:02,280 --> 00:02:05,880
Speaker 1: you know grew about seven percent, but those cyclical groups

33
00:02:05,880 --> 00:02:09,799
Speaker 1: grew something like thirty or forty because they just they

34
00:02:09,880 --> 00:02:13,840
Speaker 1: just did better. They have more operating leverage, more physical infrastructure,

35
00:02:13,840 --> 00:02:16,840
Speaker 1: in in in the kind of old economy cyclicals, and

36
00:02:16,880 --> 00:02:18,760
Speaker 1: therefore they have more upset. And if you look at

37
00:02:18,760 --> 00:02:23,359
Speaker 1: this earning season, those tech companies were, you know, the well,

38
00:02:23,400 --> 00:02:27,119
Speaker 1: the megacap tech companies were pretty lack luster. So it's

39
00:02:27,160 --> 00:02:30,760
Speaker 1: not just a sentiment issue. They're they're having a harder time.

40
00:02:30,800 --> 00:02:35,320
Speaker 1: But but also they went into the year very expensive.

41
00:02:35,400 --> 00:02:38,160
Speaker 1: That run that we were predicting in Tech played out

42
00:02:38,160 --> 00:02:40,399
Speaker 1: beautifully and sometimes you have to know when it's time

43
00:02:40,480 --> 00:02:42,760
Speaker 1: to take your foot off the battle, which is what

44
00:02:42,800 --> 00:02:45,120
Speaker 1: we did on Tech earlier this year. How do retail

45
00:02:45,160 --> 00:02:49,680
Speaker 1: earnings fit into your thesis? Well, you know, um, Lisa,

46
00:02:50,480 --> 00:02:55,040
Speaker 1: the I think that everybody, starting really last Friday, thought

47
00:02:55,160 --> 00:02:58,200
Speaker 1: that the worst was behind us. And then with you know,

48
00:02:58,280 --> 00:03:01,120
Speaker 1: Walmart and Target News, people felt like they got kicked

49
00:03:01,120 --> 00:03:04,080
Speaker 1: in the stomach that maybe the consumers rolling over and

50
00:03:04,120 --> 00:03:06,880
Speaker 1: companies are gonna have margin problems. And then if you

51
00:03:06,919 --> 00:03:10,040
Speaker 1: actually look, you know, we had a lot of companies

52
00:03:10,080 --> 00:03:11,920
Speaker 1: like you know, t J Max and Home Depo and

53
00:03:11,960 --> 00:03:14,760
Speaker 1: Lows and they did fine that they had beats in

54
00:03:14,840 --> 00:03:18,720
Speaker 1: the high single digits. It was really a couple of

55
00:03:18,720 --> 00:03:21,360
Speaker 1: these prominent names like Home Depot Lows at hard time,

56
00:03:21,800 --> 00:03:24,400
Speaker 1: and a lot of those were really what I would

57
00:03:24,400 --> 00:03:28,000
Speaker 1: call is a mix issue. People were buying groceries, but

58
00:03:28,080 --> 00:03:31,480
Speaker 1: they didn't want to buy furniture and TV sets and

59
00:03:31,480 --> 00:03:35,120
Speaker 1: and in many cases these were really merchandising problems. They

60
00:03:35,120 --> 00:03:38,000
Speaker 1: were kind of the wrong products as people are rotating

61
00:03:38,440 --> 00:03:43,240
Speaker 1: towards um experiences and restaurants and hotels and getting back out.

62
00:03:43,520 --> 00:03:47,760
Speaker 1: So I'm not sure that we should be over extrapolating

63
00:03:48,080 --> 00:03:50,320
Speaker 1: some of the bad news from those retails, but I

64
00:03:50,320 --> 00:03:53,200
Speaker 1: will tell you it surely shook the market in the

65
00:03:53,200 --> 00:03:55,440
Speaker 1: middle part of this week. So that's the glass half

66
00:03:55,440 --> 00:03:58,760
Speaker 1: full view of these retail earnings that basically it is

67
00:03:58,840 --> 00:04:01,960
Speaker 1: a mixed issue, not a consumer health issue. And some

68
00:04:02,000 --> 00:04:04,160
Speaker 1: people would agree with you, Jonathan, But doesn't that give

69
00:04:04,160 --> 00:04:06,320
Speaker 1: you a sense that the FED is going to raise

70
00:04:06,440 --> 00:04:08,880
Speaker 1: rates all the more so to try to stave off

71
00:04:08,920 --> 00:04:11,680
Speaker 1: some of the inflationary pressure because the consumer still has

72
00:04:11,760 --> 00:04:15,400
Speaker 1: momentum and that presents a valuation problem for stocks. As

73
00:04:15,440 --> 00:04:17,640
Speaker 1: we were hearing from Sevita Supermannia in a Bank of

74
00:04:17,640 --> 00:04:20,760
Speaker 1: America earlier this morning. Yeah, I'm not sure that the

75
00:04:20,800 --> 00:04:25,359
Speaker 1: FED responds to the retail earnings that but but I

76
00:04:25,360 --> 00:04:29,640
Speaker 1: mean generally, but the trend. But listen, wage inflation is

77
00:04:29,760 --> 00:04:32,080
Speaker 1: really high. When when when a year ago, when we

78
00:04:32,160 --> 00:04:35,920
Speaker 1: when we had three percent inflation, people were saying, is

79
00:04:35,960 --> 00:04:38,560
Speaker 1: oh that speaking, there's no way to get to four percent?

80
00:04:39,000 --> 00:04:41,400
Speaker 1: And now we're we're over eight. So the Fed, I

81
00:04:41,440 --> 00:04:43,679
Speaker 1: don't want to say there at autopilot for a little while,

82
00:04:43,920 --> 00:04:46,320
Speaker 1: but they're gonna have to push rates, you know, at

83
00:04:46,440 --> 00:04:49,279
Speaker 1: least a three percent, which is what the markets discounting.

84
00:04:49,680 --> 00:04:51,440
Speaker 1: And my view is by the end of next year

85
00:04:51,480 --> 00:04:54,719
Speaker 1: we maybe closing to four percent on on FED funds

86
00:04:54,720 --> 00:04:57,359
Speaker 1: if if they need to, you know, really hold on

87
00:04:57,360 --> 00:05:01,040
Speaker 1: a second, Jonathan, in all honesty, then how canst keep rallying?

88
00:05:01,279 --> 00:05:03,640
Speaker 1: How can you get to near five thousand and by

89
00:05:03,640 --> 00:05:05,680
Speaker 1: the end of the year on the SMP if you

90
00:05:05,720 --> 00:05:09,120
Speaker 1: get three or four percent fund funds rate? Well, I mean,

91
00:05:09,240 --> 00:05:13,200
Speaker 1: the most important thing is corporate profits are holding up

92
00:05:13,360 --> 00:05:15,520
Speaker 1: really well on and so take a look at this

93
00:05:15,520 --> 00:05:20,440
Speaker 1: this earning season. Revenues are running on the SMP four percent.

94
00:05:20,560 --> 00:05:23,880
Speaker 1: This quarter, earnings are up twelve, so the margin pressure

95
00:05:24,360 --> 00:05:27,880
Speaker 1: is tiny. But we had this really weird thing going

96
00:05:27,960 --> 00:05:31,000
Speaker 1: on with the banks with reserve releases, and if you

97
00:05:31,080 --> 00:05:35,880
Speaker 1: took that out, the revenues were and the EPs was twenty.

98
00:05:35,960 --> 00:05:39,240
Speaker 1: So the earnings are super powerful and stocks are cheap

99
00:05:39,279 --> 00:05:41,520
Speaker 1: at this boy, John, John, John, that is the most

100
00:05:41,560 --> 00:05:45,440
Speaker 1: intelligent thing I've heard this week on equity optimism. That

101
00:05:45,600 --> 00:05:50,359
Speaker 1: differential equation is linked at the hip with nominal g

102
00:05:50,520 --> 00:05:53,719
Speaker 1: d P and the decline. Are you suggesting within all

103
00:05:53,720 --> 00:05:57,320
Speaker 1: the credit suites work that the great miss here is

104
00:05:57,320 --> 00:06:03,160
Speaker 1: at nominal GDP will sustain longer, which will allow companies

105
00:06:03,200 --> 00:06:07,840
Speaker 1: to adapt into the gloom Lisa just mentioned Tom, I

106
00:06:07,880 --> 00:06:11,080
Speaker 1: think that is the only story. I mean, my favorite

107
00:06:11,200 --> 00:06:13,520
Speaker 1: that The one screen that I look at the most

108
00:06:13,520 --> 00:06:16,880
Speaker 1: of my Bloomberg terminal is e c f C. What

109
00:06:17,200 --> 00:06:21,320
Speaker 1: where is the consensus view on what the economy is

110
00:06:21,360 --> 00:06:23,719
Speaker 1: going to do over the next quarter and year and

111
00:06:23,760 --> 00:06:26,360
Speaker 1: two years. And what it tells you is that nominal

112
00:06:26,440 --> 00:06:31,200
Speaker 1: GDP this year should run nine percent. I mean normal

113
00:06:31,440 --> 00:06:34,400
Speaker 1: is three and a half. For all of those folks

114
00:06:34,440 --> 00:06:39,159
Speaker 1: who say, oh, we're going into recession, economists all over

115
00:06:39,200 --> 00:06:42,520
Speaker 1: are basically saying this is a recoring economy. You know,

116
00:06:42,520 --> 00:06:46,200
Speaker 1: I'm gonna tear up here. John Golub, John Farrow. John

117
00:06:46,240 --> 00:06:50,480
Speaker 1: Golub is really drunk the kool a did credit Suiteze Donaldson, Lufkin, Jenrette.

118
00:06:50,640 --> 00:06:52,760
Speaker 1: He's on the edge of Tom Galvin here with a

119
00:06:52,800 --> 00:06:56,080
Speaker 1: sales centric view. I'm gonna try and beat polite hair

120
00:06:56,640 --> 00:07:00,880
Speaker 1: um a c FC Okay, John, has that ever been

121
00:07:00,920 --> 00:07:06,080
Speaker 1: a leading indicator for anything? Well, I mean, you know, Jonathan,

122
00:07:06,120 --> 00:07:10,480
Speaker 1: you have to use some framework to say directionally, where

123
00:07:10,480 --> 00:07:14,400
Speaker 1: do we think that the economy is going. So if

124
00:07:14,440 --> 00:07:17,400
Speaker 1: you're looking at you know, where inflation is going. You

125
00:07:17,400 --> 00:07:19,640
Speaker 1: can look at the tips market. If you're looking where

126
00:07:19,680 --> 00:07:23,120
Speaker 1: GDP is, it's not there's no tradeable instrument on your Bloomberg.

127
00:07:23,200 --> 00:07:25,840
Speaker 1: You have no choice but to use either your own

128
00:07:25,840 --> 00:07:29,040
Speaker 1: house economists and and and our continentst guys are also

129
00:07:29,080 --> 00:07:31,800
Speaker 1: pretty bullish. But but or you can just say where's

130
00:07:31,920 --> 00:07:36,120
Speaker 1: where's the whole gang? Thinking that that that the the

131
00:07:36,160 --> 00:07:38,880
Speaker 1: growth is gonna be and and that's what you find

132
00:07:38,920 --> 00:07:40,600
Speaker 1: on the terminal. And not only can you do it,

133
00:07:40,680 --> 00:07:42,640
Speaker 1: but I can see it by firm, so I can

134
00:07:42,680 --> 00:07:44,760
Speaker 1: say what are the biggest shops? What are the people

135
00:07:44,760 --> 00:07:46,720
Speaker 1: at the FED think it's gonna be. They're all in

136
00:07:46,760 --> 00:07:51,400
Speaker 1: the same direction, which is the underlying economic growth measurement

137
00:07:51,440 --> 00:07:55,119
Speaker 1: in nominal dollars, that's including inflation is gonna be really

138
00:07:55,120 --> 00:07:57,360
Speaker 1: strong this year and here's the most important thing, and

139
00:07:57,400 --> 00:08:00,480
Speaker 1: really strong next year as well. That's that's not you know,

140
00:08:00,560 --> 00:08:03,440
Speaker 1: that's that's that's that Haro that it's just the FED

141
00:08:03,520 --> 00:08:05,800
Speaker 1: full cost John, When did the FED a full cost

142
00:08:05,800 --> 00:08:09,480
Speaker 1: of recession? It's just not well they do it with

143
00:08:09,640 --> 00:08:11,680
Speaker 1: they do it about a year with a year delay.

144
00:08:11,880 --> 00:08:13,880
Speaker 1: You know there there, they do it after the fact.

145
00:08:13,920 --> 00:08:17,280
Speaker 1: But but listen, I get that, But you have to

146
00:08:17,400 --> 00:08:20,240
Speaker 1: use some framework saying where do you think the world

147
00:08:20,320 --> 00:08:22,040
Speaker 1: is going? And if you ask me what the most

148
00:08:22,040 --> 00:08:26,040
Speaker 1: important issue is on inflation and growth. We have an

149
00:08:26,040 --> 00:08:29,920
Speaker 1: incredibly tight labor market, which is leaving the consumer really

150
00:08:30,000 --> 00:08:34,079
Speaker 1: confident in their ability to find work, and that leads

151
00:08:34,120 --> 00:08:36,920
Speaker 1: people to be willing to go out and over extend

152
00:08:36,920 --> 00:08:39,600
Speaker 1: themselves on credit. And it also means that you have

153
00:08:39,880 --> 00:08:43,000
Speaker 1: high wage inflation. You add those two things together, it's

154
00:08:43,000 --> 00:08:46,200
Speaker 1: all about the labor market. And and that's my take.

155
00:08:46,320 --> 00:08:49,400
Speaker 1: Independent of what you have on that, that forecasting is great.

156
00:08:49,559 --> 00:08:52,280
Speaker 1: Define both John is gonna catch up buddy as always,

157
00:08:52,320 --> 00:09:02,200
Speaker 1: Johnathan of the Credit swas right now in an important conversation,

158
00:09:02,280 --> 00:09:04,839
Speaker 1: and I will go to John Pharaoh here in a moment.

159
00:09:04,880 --> 00:09:07,040
Speaker 1: But I want to slip in one question with the

160
00:09:07,120 --> 00:09:12,199
Speaker 1: United Kingdoms Secretary of State for Business, Energy and Industrial Strategy,

161
00:09:12,640 --> 00:09:15,000
Speaker 1: he John and the rest of the nation enjoying a

162
00:09:15,120 --> 00:09:19,280
Speaker 1: nine percent inflation. Kasi Carton is with us. He's celebrating

163
00:09:19,320 --> 00:09:24,520
Speaker 1: Liverpool's European dominance and more than anything understands the gridlock

164
00:09:24,720 --> 00:09:29,080
Speaker 1: of British politics. Author a decade ago of gridlock nation.

165
00:09:29,440 --> 00:09:32,640
Speaker 1: What's the level of gridlock right now, Minister, in terms

166
00:09:32,679 --> 00:09:38,120
Speaker 1: of dealing with nine percent inflation? Well, it's a huge challenge, Tom,

167
00:09:38,160 --> 00:09:41,640
Speaker 1: and you will know that it's a global challenge. We

168
00:09:41,760 --> 00:09:45,840
Speaker 1: had a pandemic, we had lockdowns right across the world,

169
00:09:46,440 --> 00:09:50,960
Speaker 1: we had a huge surgeon demand when those lockdowns were eased,

170
00:09:51,400 --> 00:09:56,240
Speaker 1: and now we've got this unprecedented situation in Ukraine, first

171
00:09:56,280 --> 00:09:59,439
Speaker 1: time in seventy years, seventy five years that we're seeing

172
00:09:59,480 --> 00:10:03,800
Speaker 1: an actual war in Europe. So these are unprecedented times

173
00:10:04,120 --> 00:10:09,000
Speaker 1: and the British government has very much decided to help consumers,

174
00:10:09,040 --> 00:10:13,319
Speaker 1: help people in the UK. We had a good announcement

175
00:10:13,320 --> 00:10:16,000
Speaker 1: from the Chancellor in February about the kind of help

176
00:10:16,600 --> 00:10:19,200
Speaker 1: that he was willing to give, and he and the

177
00:10:19,200 --> 00:10:21,840
Speaker 1: Prime Minister have said that they are looking to help

178
00:10:21,880 --> 00:10:24,720
Speaker 1: people more. Let's talk about that and whether situation the

179
00:10:24,840 --> 00:10:27,320
Speaker 1: consumer the people of the UK feeling that right now.

180
00:10:27,320 --> 00:10:30,839
Speaker 1: Because he wrote a letter recently two petrol retailers about

181
00:10:30,920 --> 00:10:33,920
Speaker 1: the concerns that the Chancellor's five fuel duty cup wasn't

182
00:10:33,920 --> 00:10:37,200
Speaker 1: being passed on in any visible or meaningful way. What's

183
00:10:37,240 --> 00:10:40,839
Speaker 1: the response been, Well, we're looking at that still. I mean,

184
00:10:40,880 --> 00:10:46,079
Speaker 1: I think it's very wrong of Petrol the four courts

185
00:10:46,720 --> 00:10:49,880
Speaker 1: not to pass on the reduction um and I think,

186
00:10:49,960 --> 00:10:52,520
Speaker 1: you know, we we're seeing that there's some behavior change,

187
00:10:52,520 --> 00:10:54,000
Speaker 1: but they could There's a lot more they could do

188
00:10:54,440 --> 00:10:57,120
Speaker 1: and I'm very keen that they actually help out. You're

189
00:10:57,160 --> 00:10:59,959
Speaker 1: against the windfall tax, why is there? I've been always

190
00:11:00,040 --> 00:11:03,320
Speaker 1: against wind full tax. I think there arbitrary. I think

191
00:11:03,320 --> 00:11:06,400
Speaker 1: they discourage investment. And when you look at the companies

192
00:11:06,440 --> 00:11:11,200
Speaker 1: that invest in the North Sea, you know it's a

193
00:11:11,280 --> 00:11:14,080
Speaker 1: very cyclical business. So when they make money, they tend

194
00:11:14,080 --> 00:11:16,240
Speaker 1: to make a lot of money, and then when they lose,

195
00:11:16,920 --> 00:11:20,000
Speaker 1: they make big losses and they're not they're not supported

196
00:11:20,000 --> 00:11:22,360
Speaker 1: when they do make those losses. You've talked about investment

197
00:11:22,360 --> 00:11:24,800
Speaker 1: in the UK and you're worried that it would deter investment,

198
00:11:24,840 --> 00:11:27,360
Speaker 1: but not learning of tre P said to The Times

199
00:11:27,360 --> 00:11:29,720
Speaker 1: earlier this month. He was asked basically whether he change

200
00:11:29,720 --> 00:11:32,600
Speaker 1: any spending plans because of a windfall tax, and he said, quote,

201
00:11:32,960 --> 00:11:35,720
Speaker 1: there are none that we wouldn't do. Isn't that good

202
00:11:35,720 --> 00:11:38,440
Speaker 1: news that you can do that? He won't change your

203
00:11:38,480 --> 00:11:41,480
Speaker 1: spending plants. He's telling you, well, it's up to I mean,

204
00:11:41,520 --> 00:11:44,440
Speaker 1: you can speak to Bernard directly yourself. I'm not quite

205
00:11:44,440 --> 00:11:46,200
Speaker 1: sure what he was referring to, but there's no doubt

206
00:11:46,200 --> 00:11:49,400
Speaker 1: that other players in the industry say that any kind

207
00:11:49,400 --> 00:11:52,400
Speaker 1: of wind full tax would deter future investment. I mean,

208
00:11:52,440 --> 00:11:56,439
Speaker 1: that's pretty obvious, um, and they need fiscal certainty. They

209
00:11:56,440 --> 00:11:59,079
Speaker 1: don't want rabbits out of the hat, so they just speach.

210
00:12:00,559 --> 00:12:02,320
Speaker 1: I just wanted to jump in with something the chancellors

211
00:12:02,320 --> 00:12:05,000
Speaker 1: said to the Chancellor said what I want to see

212
00:12:05,000 --> 00:12:08,160
Speaker 1: a significant investment back into the UK economy to support jobs,

213
00:12:08,520 --> 00:12:11,000
Speaker 1: to support energy security, and I want to see that suit.

214
00:12:11,040 --> 00:12:12,920
Speaker 1: If that doesn't happen, then no options are off the

215
00:12:12,960 --> 00:12:15,120
Speaker 1: table now, as you know quality the printent response from

216
00:12:15,120 --> 00:12:17,080
Speaker 1: any chance there is not to take things off the

217
00:12:17,080 --> 00:12:19,440
Speaker 1: table ahead of a plan. But I want your view

218
00:12:19,480 --> 00:12:22,199
Speaker 1: on there. I want some goals. I want to understand

219
00:12:22,320 --> 00:12:24,600
Speaker 1: what kind of investments do you want to see from

220
00:12:24,640 --> 00:12:27,120
Speaker 1: these players and over what time frame, because if we're

221
00:12:27,120 --> 00:12:28,920
Speaker 1: going to wait for these guys, they've got a ten

222
00:12:29,000 --> 00:12:31,320
Speaker 1: year time of writing for their spending plans will be

223
00:12:31,320 --> 00:12:33,440
Speaker 1: out a decade and then we'll say, oh, okay, maybe

224
00:12:33,440 --> 00:12:35,640
Speaker 1: we should have do a win full tax. Now what's

225
00:12:35,640 --> 00:12:37,839
Speaker 1: the time frame how much spending you want to see

226
00:12:37,920 --> 00:12:40,439
Speaker 1: over what time we want to see spending I'm not

227
00:12:40,440 --> 00:12:42,800
Speaker 1: going to quantify, but we want to see actual, real spending.

228
00:12:42,800 --> 00:12:44,440
Speaker 1: And there's evidence that they're doing that. I mean, if

229
00:12:44,440 --> 00:12:48,240
Speaker 1: you look at our program for carbon capture blue hydrogen production,

230
00:12:48,600 --> 00:12:52,200
Speaker 1: both SHELL and BP are directly involved in that in

231
00:12:52,240 --> 00:12:56,000
Speaker 1: the northeast of our country of England, and they can

232
00:12:56,040 --> 00:13:00,520
Speaker 1: see that there is a huge opportunity in terms of investment.

233
00:13:00,559 --> 00:13:03,520
Speaker 1: And that's exactly what the chance of, the kind of investment,

234
00:13:03,559 --> 00:13:05,560
Speaker 1: the chance that wants to see. And as you say,

235
00:13:05,840 --> 00:13:08,760
Speaker 1: the chance is quite right to say all options are

236
00:13:08,760 --> 00:13:11,560
Speaker 1: on the table. Every chancellor I've known since i've been

237
00:13:11,600 --> 00:13:14,400
Speaker 1: an MP has always said that there's no way that

238
00:13:14,400 --> 00:13:16,760
Speaker 1: he's going to take options off the table ahead of

239
00:13:16,760 --> 00:13:20,319
Speaker 1: the budget. Dr Quartine, you enjoy a PhD in economic

240
00:13:20,440 --> 00:13:24,080
Speaker 1: history from a small shop the University of Cambridge. You

241
00:13:24,120 --> 00:13:26,360
Speaker 1: know the history of this and the simple history as

242
00:13:26,400 --> 00:13:31,160
Speaker 1: windfall profit taxes do not work period. It's well documented.

243
00:13:31,400 --> 00:13:35,520
Speaker 1: But as John alludes to, there is a generational trust

244
00:13:35,880 --> 00:13:40,680
Speaker 1: that has been broken between corporate elites and the people.

245
00:13:41,360 --> 00:13:45,600
Speaker 1: How do you guarantee, given the lack of trust, a

246
00:13:45,840 --> 00:13:51,040
Speaker 1: process here that helps the people of the United Kingdom.

247
00:13:51,080 --> 00:13:53,720
Speaker 1: So that's why the Chance that was very clear Tom

248
00:13:53,800 --> 00:13:57,240
Speaker 1: that they have to invest in the UK. We want

249
00:13:57,240 --> 00:14:00,600
Speaker 1: to see their ambitions realized by there. Do you need

250
00:14:00,600 --> 00:14:04,000
Speaker 1: an investrating? Does is it so urgent that it needs

251
00:14:04,040 --> 00:14:07,840
Speaker 1: to be crtified to be in writing? I think I

252
00:14:07,880 --> 00:14:11,160
Speaker 1: think the commitments are already there. I'm not sure that

253
00:14:11,200 --> 00:14:14,400
Speaker 1: we need any kind of legal document or quasi legal document.

254
00:14:14,760 --> 00:14:19,160
Speaker 1: But what what they understand is that these new technologies,

255
00:14:19,840 --> 00:14:24,080
Speaker 1: the decarbonization, all of that stuff needs investment and it

256
00:14:24,080 --> 00:14:26,800
Speaker 1: actually creates jobs. And you will also know that we're

257
00:14:26,880 --> 00:14:30,920
Speaker 1: very interested, are very focused on leveling up. That's actually

258
00:14:31,000 --> 00:14:34,040
Speaker 1: giving opportunity to areas of our country in the UK

259
00:14:34,520 --> 00:14:38,120
Speaker 1: which in the last few years few decades have been underinvested.

260
00:14:38,400 --> 00:14:42,200
Speaker 1: And so BP and Shell and others know that our

261
00:14:42,240 --> 00:14:47,840
Speaker 1: commitment to leveling up and our commitment also to decobinization

262
00:14:48,040 --> 00:14:52,360
Speaker 1: mean that business investment needs to happen, and they're very

263
00:14:52,400 --> 00:14:54,480
Speaker 1: aware of that. And they also know, as the Chance

264
00:14:54,520 --> 00:14:56,920
Speaker 1: that said, that if they don't step up to that plate,

265
00:14:57,720 --> 00:14:59,960
Speaker 1: then they could well be subject to win full tax,

266
00:15:00,040 --> 00:15:03,640
Speaker 1: because I think that's a reasonable conversation. Just to final question, sir,

267
00:15:04,000 --> 00:15:06,720
Speaker 1: just on the final point, to understand what people are

268
00:15:06,720 --> 00:15:08,760
Speaker 1: going through right now if they listen to this conversation.

269
00:15:09,240 --> 00:15:12,240
Speaker 1: You've got a company BP engaged in buy backs. I'm

270
00:15:12,280 --> 00:15:14,520
Speaker 1: not here to say that's the wrong thing. They've referred

271
00:15:14,520 --> 00:15:16,720
Speaker 1: to themselves as a cash machine when all prices are

272
00:15:16,720 --> 00:15:19,520
Speaker 1: climate like they are. You've got the CEO who's saying

273
00:15:19,520 --> 00:15:21,880
Speaker 1: he wouldn't change his spending plan if he faced the

274
00:15:21,880 --> 00:15:24,960
Speaker 1: windfall tax, and we've got the government saying we don't

275
00:15:25,000 --> 00:15:27,640
Speaker 1: want to do that. You're saying that, do you understand

276
00:15:27,640 --> 00:15:30,240
Speaker 1: how deeply uncomfortable that might be for people who can't

277
00:15:30,240 --> 00:15:33,480
Speaker 1: pay their energy bills this month. Look, it's really difficult,

278
00:15:33,520 --> 00:15:37,600
Speaker 1: but the investment actually helps people. People have pension plans,

279
00:15:37,920 --> 00:15:40,720
Speaker 1: they have they want to have jobs, they want to

280
00:15:40,720 --> 00:15:44,560
Speaker 1: have energy security. So I can't, as an energy minister say,

281
00:15:44,760 --> 00:15:47,560
Speaker 1: please invest in our energy security of supply. But by

282
00:15:47,600 --> 00:15:49,560
Speaker 1: the way, I'm going to give you a wind full tax.

283
00:15:49,600 --> 00:15:53,160
Speaker 1: That doesn't make sense. In order to protect energy supply,

284
00:15:53,280 --> 00:15:56,520
Speaker 1: we need investment, and in order to have investment, they

285
00:15:56,560 --> 00:16:00,640
Speaker 1: need we need a stable fiscal situation. We can't simply

286
00:16:00,680 --> 00:16:04,160
Speaker 1: just threatened people with will have arbitrary wind full taxes.

287
00:16:04,240 --> 00:16:07,000
Speaker 1: Having said all of that, as you know, the chance

288
00:16:07,040 --> 00:16:09,360
Speaker 1: of the check is responsible for the budget. He's not

289
00:16:09,440 --> 00:16:11,200
Speaker 1: taking any options off the table, and he wouldn't be

290
00:16:11,200 --> 00:16:12,960
Speaker 1: the first chance that did to do it, as you know,

291
00:16:13,360 --> 00:16:15,720
Speaker 1: because we could go back to the conservative chance of

292
00:16:15,840 --> 00:16:19,440
Speaker 1: night one he did something similar. Quasi thank you, right

293
00:16:19,480 --> 00:16:23,320
Speaker 1: to catch up. Thank you, sir Quasi kwat sing the

294
00:16:23,480 --> 00:16:30,920
Speaker 1: UK the Secretary of Energy and Business. It is a

295
00:16:31,000 --> 00:16:34,240
Speaker 1: joy right now on this Friday, as we regroup again

296
00:16:34,280 --> 00:16:37,040
Speaker 1: for meetings with someone who stopped us in Davos a

297
00:16:37,080 --> 00:16:40,800
Speaker 1: couple of years ago. Sevina Supermannian was in Davous with

298
00:16:40,880 --> 00:16:44,080
Speaker 1: her Bank of America holding court on E s G.

299
00:16:44,360 --> 00:16:49,240
Speaker 1: She's had of US equity and quantitative strategy for the bank. Sevina,

300
00:16:49,320 --> 00:16:52,280
Speaker 1: time has marched on E s G. Seems so yesterday's

301
00:16:52,320 --> 00:16:56,280
Speaker 1: story given record call prices as well. How does the

302
00:16:56,440 --> 00:17:00,680
Speaker 1: shock of these many global risks fold all over into

303
00:17:00,760 --> 00:17:05,240
Speaker 1: moving forward in the stock market? How do you regroup

304
00:17:05,359 --> 00:17:09,720
Speaker 1: now to get ready for two thousand twenty three? Yeah,

305
00:17:10,040 --> 00:17:13,119
Speaker 1: I mean I think that where we are now is

306
00:17:13,320 --> 00:17:16,800
Speaker 1: Tom a tough time for E s G investors because

307
00:17:16,920 --> 00:17:19,520
Speaker 1: the best performing areas of the market are hard to

308
00:17:19,520 --> 00:17:23,359
Speaker 1: bold defense energy. These are two areas that are typically

309
00:17:23,400 --> 00:17:26,320
Speaker 1: excluded from e SG funds. So I think that's been

310
00:17:26,640 --> 00:17:31,040
Speaker 1: hurting these, uh, these types of investors from a market perspective,

311
00:17:31,160 --> 00:17:34,000
Speaker 1: I still think the worst is not behind us. UM.

312
00:17:34,000 --> 00:17:37,119
Speaker 1: We published yesterday that it was sort of a realistic

313
00:17:37,200 --> 00:17:40,080
Speaker 1: worst case floor for the S and P five hundred

314
00:17:40,119 --> 00:17:44,040
Speaker 1: would be about three thousand, thirty two hundred UM. You know,

315
00:17:44,160 --> 00:17:46,520
Speaker 1: here's the thing I think when I talk to clients now,

316
00:17:46,720 --> 00:17:49,679
Speaker 1: folks are asking me, you know, give me any reason

317
00:17:49,760 --> 00:17:53,160
Speaker 1: to be bullish right now? And I think the reasons

318
00:17:53,200 --> 00:17:55,600
Speaker 1: to be bullish are the fact that clients are asking

319
00:17:55,640 --> 00:17:59,480
Speaker 1: that question. There's a pervasive, uh kind of fog of

320
00:17:59,560 --> 00:18:02,720
Speaker 1: negative sentiments out there which would argue that at the

321
00:18:02,720 --> 00:18:05,520
Speaker 1: bad news is priced in. I think what you want

322
00:18:05,520 --> 00:18:08,080
Speaker 1: to buy at this point in the cycle is still

323
00:18:08,400 --> 00:18:14,520
Speaker 1: very late cycle inflation beneficiary. So we're still overweight energy.

324
00:18:14,600 --> 00:18:18,199
Speaker 1: I think energy. You know, to your point about China reopening,

325
00:18:18,600 --> 00:18:21,280
Speaker 1: energy could be Oil could be depressed right now, just

326
00:18:21,320 --> 00:18:23,720
Speaker 1: given the fact that the second largest economy in the

327
00:18:23,760 --> 00:18:28,560
Speaker 1: world is offline um, I think that materials look less

328
00:18:28,600 --> 00:18:32,399
Speaker 1: interesting to US commodities and metals because we are seeing

329
00:18:32,480 --> 00:18:35,000
Speaker 1: some slowing trends in China despite the fact that they

330
00:18:35,040 --> 00:18:38,040
Speaker 1: are trying to you know, stimulate the economy. And we're

331
00:18:38,080 --> 00:18:42,840
Speaker 1: also seeing a shift in demand from finished hard goods

332
00:18:42,920 --> 00:18:46,680
Speaker 1: and you know, big ticket items to services. So under

333
00:18:46,720 --> 00:18:50,439
Speaker 1: that backdrop, it makes sense to continue to go along oil,

334
00:18:50,600 --> 00:18:53,840
Speaker 1: but you know, maybe move off of the raw materials.

335
00:18:54,040 --> 00:18:57,119
Speaker 1: So long agoing far away, a guy named Ken Lewis

336
00:18:57,200 --> 00:18:59,880
Speaker 1: was pillorated Bank of American. I always thought that Ken

337
00:19:00,119 --> 00:19:03,480
Speaker 1: us was brilliant on his Pacific RIM strategy. Bank of

338
00:19:03,520 --> 00:19:06,600
Speaker 1: America didn't go into the Pacific rim or their head

339
00:19:06,640 --> 00:19:09,440
Speaker 1: cut off. They were very measured about it and attempted

340
00:19:09,480 --> 00:19:12,520
Speaker 1: to be responsible. I want to know what you think

341
00:19:12,600 --> 00:19:16,000
Speaker 1: about the bet on Pacific RIM equity is given a

342
00:19:16,200 --> 00:19:19,400
Speaker 1: China reopening. Is it worth playing or do you stay

343
00:19:19,400 --> 00:19:22,919
Speaker 1: in the US? I think you stay in the US.

344
00:19:23,040 --> 00:19:25,840
Speaker 1: I mean, look, you know this this year, we've seen

345
00:19:25,840 --> 00:19:31,560
Speaker 1: a very interesting rewriting of countries based on energy security.

346
00:19:31,760 --> 00:19:36,280
Speaker 1: Countries that can don't need to import oil are probably

347
00:19:36,560 --> 00:19:40,239
Speaker 1: you know, kind of enjoying a unique advantage. And and

348
00:19:40,280 --> 00:19:43,200
Speaker 1: I think that second of all, the US is further

349
00:19:43,280 --> 00:19:46,400
Speaker 1: along in terms of trying to stimulate the economy, trying

350
00:19:46,400 --> 00:19:49,760
Speaker 1: to push up interest rates. We have corporates and consumers

351
00:19:49,760 --> 00:19:53,840
Speaker 1: that are better capitalized. They've you know, basically gotten all

352
00:19:53,880 --> 00:19:56,439
Speaker 1: this money from the FED and the government. So I

353
00:19:56,480 --> 00:19:59,159
Speaker 1: think that when I look at the US relative to

354
00:19:59,240 --> 00:20:02,600
Speaker 1: rest of world, I still think this is a year

355
00:20:02,760 --> 00:20:04,919
Speaker 1: or two where the US is going to continue to

356
00:20:04,960 --> 00:20:07,520
Speaker 1: outperform rest of world. So emerging markets, to me, it

357
00:20:07,640 --> 00:20:11,480
Speaker 1: still looks a little bit uh uh, you know, potentially risky.

358
00:20:11,640 --> 00:20:14,520
Speaker 1: Not to mention that if you look at our economists,

359
00:20:14,520 --> 00:20:18,240
Speaker 1: they're advising down their growth forecasts outside of the US

360
00:20:18,359 --> 00:20:21,200
Speaker 1: much more aggressively than within the US. So I think

361
00:20:21,240 --> 00:20:25,120
Speaker 1: those are all reasons to stay local, stay US focused.

362
00:20:25,119 --> 00:20:27,959
Speaker 1: Even small caps I think could do well in an

363
00:20:28,080 --> 00:20:31,800
Speaker 1: environment where the US economy is potentially you know, going

364
00:20:31,840 --> 00:20:33,760
Speaker 1: to see a little bit of a list of companies

365
00:20:33,760 --> 00:20:36,320
Speaker 1: start spending again. You know, Tom, I just want to say,

366
00:20:36,359 --> 00:20:39,080
Speaker 1: the most surprising thing to me during this earning season

367
00:20:39,640 --> 00:20:43,080
Speaker 1: is that even though all of these companies are guiding

368
00:20:43,160 --> 00:20:45,959
Speaker 1: down and you know, very negative in terms of what

369
00:20:46,000 --> 00:20:48,879
Speaker 1: they're expecting over the next couple of years, they're still

370
00:20:48,920 --> 00:20:52,080
Speaker 1: guiding up on cap X. They're still telling us they're

371
00:20:52,080 --> 00:20:54,399
Speaker 1: going to spend more than we think they're going to spend.

372
00:20:54,880 --> 00:20:58,240
Speaker 1: Capex cycles are generally good for the economy, they're good

373
00:20:58,240 --> 00:21:00,720
Speaker 1: for small caps. Maybe they're negati for the companies that

374
00:21:00,840 --> 00:21:02,880
Speaker 1: have to spend the money. But I think it's interesting

375
00:21:02,920 --> 00:21:06,240
Speaker 1: to see that capex is still a theme that companies

376
00:21:06,320 --> 00:21:10,800
Speaker 1: haven't dialed back. Serveta, this week's staples have been absolutely hammered.

377
00:21:11,160 --> 00:21:13,480
Speaker 1: Retails already struggled. You've been on top of that story.

378
00:21:13,480 --> 00:21:15,120
Speaker 1: I want to want to send from your perspective, whether

379
00:21:15,160 --> 00:21:17,320
Speaker 1: we're confusing two things right now, the difference between how

380
00:21:17,400 --> 00:21:19,960
Speaker 1: much the consumer is spending and how they're spending it.

381
00:21:20,320 --> 00:21:22,480
Speaker 1: There seemed to be a massive focus on just the weakness,

382
00:21:22,520 --> 00:21:24,800
Speaker 1: the signal that you're getting from the retailers that there

383
00:21:24,840 --> 00:21:27,040
Speaker 1: was some weakness out there. Do you think the biggest

384
00:21:27,080 --> 00:21:29,880
Speaker 1: story this week was just a shift in how they're spending,

385
00:21:30,200 --> 00:21:32,760
Speaker 1: not how much they're spending. So I think the big

386
00:21:32,760 --> 00:21:36,480
Speaker 1: shifts are how they're spending and also just you know, labor,

387
00:21:36,640 --> 00:21:40,040
Speaker 1: there's a there's a sort of a really dramatic shift

388
00:21:40,080 --> 00:21:43,400
Speaker 1: in terms of undersupplied to oversupplied that we're hearing from companies,

389
00:21:43,920 --> 00:21:47,679
Speaker 1: and that could actually benefit some of the more labor

390
00:21:47,720 --> 00:21:52,520
Speaker 1: intensive areas of the consumer sector, like supermarkets or you know,

391
00:21:52,560 --> 00:21:55,000
Speaker 1: we haven't seen these companies perform well, but I think

392
00:21:55,000 --> 00:21:57,439
Speaker 1: that where we're where we are seeing a little bit

393
00:21:57,440 --> 00:22:00,879
Speaker 1: of an alleviation is in terms of the the labor supply,

394
00:22:01,040 --> 00:22:04,439
Speaker 1: so that's you know, potentially a positive for margins. We're

395
00:22:04,560 --> 00:22:08,840
Speaker 1: overweight staples for the long haul because our idea is,

396
00:22:09,280 --> 00:22:12,399
Speaker 1: as Ethan Harris, our global economists continues to warn of

397
00:22:12,600 --> 00:22:17,520
Speaker 1: rising recession risks, we think that staples, healthcare, no matter what,

398
00:22:17,600 --> 00:22:20,040
Speaker 1: you still have to take your drugs and you know,

399
00:22:20,160 --> 00:22:23,119
Speaker 1: eat your food. So defensive sectors to us still make

400
00:22:23,160 --> 00:22:27,240
Speaker 1: a lot of sense. In a stipulationary backdrop. The best

401
00:22:27,280 --> 00:22:33,440
Speaker 1: performing sectors are energy, consumer, staples, utilities, to a lesser extent, materials.

402
00:22:33,640 --> 00:22:36,520
Speaker 1: You want to stay defensive and you want to overweight

403
00:22:37,000 --> 00:22:43,120
Speaker 1: sectors that benefit from inflation. Civita, you sound actually somewhat pessimistic,

404
00:22:43,240 --> 00:22:45,280
Speaker 1: and yet your outlook for the end of the year

405
00:22:45,400 --> 00:22:49,480
Speaker 1: is incredibly optimistic. At a target yest might be the

406
00:22:49,520 --> 00:22:53,560
Speaker 1: low case. Are you thinking of downgrading is the base case?

407
00:22:53,800 --> 00:22:56,840
Speaker 1: And if not how do we get there? Look, so,

408
00:22:56,920 --> 00:22:59,399
Speaker 1: you know, our our target is made up of you know,

409
00:22:59,520 --> 00:23:03,240
Speaker 1: a few for factors, one of which is our our

410
00:23:03,240 --> 00:23:06,679
Speaker 1: house view on interest rates, and I think that is

411
00:23:07,080 --> 00:23:10,120
Speaker 1: the swing factor. If you look at this here, most

412
00:23:10,160 --> 00:23:12,560
Speaker 1: of the big moves that we've seen have been accompanied

413
00:23:12,560 --> 00:23:15,399
Speaker 1: by a move higher in either real rates or the

414
00:23:15,440 --> 00:23:19,440
Speaker 1: equity risk premium. Our view is that real rates continue

415
00:23:19,480 --> 00:23:22,680
Speaker 1: to move higher, but rates volatility kind of abates, and

416
00:23:22,840 --> 00:23:26,680
Speaker 1: we start to see um, you know, pe multiples essentially

417
00:23:26,720 --> 00:23:30,200
Speaker 1: stabilize as rates volatility stabilizes. If that's not the case,

418
00:23:30,600 --> 00:23:32,560
Speaker 1: we would be more negative. And I think that's the

419
00:23:32,640 --> 00:23:36,320
Speaker 1: key factor to watch. Every tiny move and interest rates

420
00:23:36,320 --> 00:23:40,160
Speaker 1: has an outsized impact on the SMP five hundred in

421
00:23:40,280 --> 00:23:43,040
Speaker 1: terms of you know, it's longer duration, and we've talked

422
00:23:43,040 --> 00:23:45,480
Speaker 1: about this on the program. The SMP five hundred is

423
00:23:45,520 --> 00:23:48,840
Speaker 1: now a thirty five years euro coupon bond is super

424
00:23:48,840 --> 00:23:52,560
Speaker 1: sensitive to the cost of capital. You're saying this is

425
00:23:52,560 --> 00:23:56,639
Speaker 1: Ethan's fault or monks folt? Whose fault is it? Both?

426
00:24:00,480 --> 00:24:06,880
Speaker 1: They're both excellent, but we incorporate she's gonna get out

427
00:24:06,880 --> 00:24:13,440
Speaker 1: of us. We're watching keep going. Now we're done We're done.

428
00:24:14,240 --> 00:24:23,040
Speaker 1: Thank you, Brian. Little friends over there an set. They

429
00:24:23,080 --> 00:24:31,840
Speaker 1: aren't some, they're all friends. I love that. Right now,

430
00:24:31,920 --> 00:24:35,080
Speaker 1: John Riding joining us your chief economic advisor, bring capital.

431
00:24:35,080 --> 00:24:37,680
Speaker 1: But on a Friday before the close are Premier League football.

432
00:24:38,119 --> 00:24:40,919
Speaker 1: Lisa and I opened this up for full discussion with

433
00:24:40,960 --> 00:24:44,240
Speaker 1: a gentleman of Preston North then and young Pharaoh as well,

434
00:24:44,640 --> 00:24:49,480
Speaker 1: John Farrell. The only player I remember from my ute

435
00:24:49,680 --> 00:24:54,159
Speaker 1: was Gerard. I don't understand why I loved him, but

436
00:24:54,359 --> 00:24:57,159
Speaker 1: I loved him. And I want you, in writing to

437
00:24:57,240 --> 00:25:01,560
Speaker 1: talk right now about Sunday in for America, why Steve

438
00:25:01,600 --> 00:25:04,520
Speaker 1: Gerard really matters. There's a great subplot to the story

439
00:25:04,560 --> 00:25:07,280
Speaker 1: on Sunday. So on Sunday you've got Manchester City top

440
00:25:07,280 --> 00:25:09,359
Speaker 1: of the league, of the Premier League. You've got Liverpool second,

441
00:25:09,440 --> 00:25:13,560
Speaker 1: Manchester City win. It's all Loafer but Manchester City. John

442
00:25:13,640 --> 00:25:17,200
Speaker 1: Riding of playing aston Villa and aston Villa are coached

443
00:25:17,359 --> 00:25:21,119
Speaker 1: by Stevie g the former great captain of Liverpool. That

444
00:25:21,200 --> 00:25:24,320
Speaker 1: is a nice little subplot going into Sunday's games. Yeah,

445
00:25:24,320 --> 00:25:26,760
Speaker 1: and and add to the fact that two of the

446
00:25:27,320 --> 00:25:30,280
Speaker 1: key players for aston Villa are former Liverpool players. In

447
00:25:30,400 --> 00:25:35,399
Speaker 1: Danny Ings and in Philip Continial who were arrested against

448
00:25:35,440 --> 00:25:40,720
Speaker 1: Wolverhampton yesterday, gets right against Burnley yesterday, and you've got

449
00:25:40,760 --> 00:25:45,120
Speaker 1: a your potential chance for those uh two if if,

450
00:25:45,200 --> 00:25:48,680
Speaker 1: if they hold City, they'll deserve winners medals from Liverpool.

451
00:25:48,760 --> 00:25:50,960
Speaker 1: That is a big, big game, Tom, not just for

452
00:25:51,040 --> 00:25:53,280
Speaker 1: Manchester City and Liverpool, but for some of those people

453
00:25:53,400 --> 00:25:56,480
Speaker 1: and Aston Villa as well. So lining things up on Sunday, Tom,

454
00:25:56,520 --> 00:25:59,479
Speaker 1: I've talked Eastern time, eleven Eastern, all the games all

455
00:25:59,520 --> 00:26:03,240
Speaker 1: at once, the final games of the year played simultaneously.

456
00:26:03,800 --> 00:26:07,240
Speaker 1: It is great to see Lisa's their soccer Barn Davos.

457
00:26:08,200 --> 00:26:16,200
Speaker 1: I mean, is this what I'm you'll find one? I'm good,

458
00:26:16,280 --> 00:26:19,400
Speaker 1: I'm good. I wanted to talk about John Riding's experiences

459
00:26:20,359 --> 00:26:24,639
Speaker 1: and wanted to actually talk about I know, well fine, John,

460
00:26:24,800 --> 00:26:26,639
Speaker 1: but I want to talk about the FED. So bear

461
00:26:26,720 --> 00:26:29,080
Speaker 1: with me. Let me just take a quick move over

462
00:26:29,119 --> 00:26:31,160
Speaker 1: there and then you guys can all talk about football

463
00:26:31,520 --> 00:26:33,800
Speaker 1: and I will let you go to the public together

464
00:26:33,920 --> 00:26:36,359
Speaker 1: on it. I am curious though, especially after being at

465
00:26:36,359 --> 00:26:40,000
Speaker 1: the Atlanta FED confab just recently, there seems to be

466
00:26:40,040 --> 00:26:42,960
Speaker 1: a belief in markets that the FED is going to

467
00:26:43,040 --> 00:26:46,040
Speaker 1: recognize the slowdown that we're seeing in some of the data,

468
00:26:46,119 --> 00:26:49,359
Speaker 1: and respond by pausing by not raising rates as much.

469
00:26:49,480 --> 00:26:52,359
Speaker 1: That seems to be opposite the rhetoric from FED officials.

470
00:26:52,640 --> 00:26:55,040
Speaker 1: What was the scuttle But when people were talking to you,

471
00:26:55,040 --> 00:26:56,719
Speaker 1: when they were not on camera, when they were not

472
00:26:56,760 --> 00:26:59,480
Speaker 1: on the podia, what did they say when it came

473
00:26:59,560 --> 00:27:02,680
Speaker 1: to their frustration with markets and their belief in a

474
00:27:02,760 --> 00:27:09,040
Speaker 1: FED put. Well, what's remarkable is they don't pay. FED

475
00:27:09,040 --> 00:27:12,439
Speaker 1: officials don't pay anywhere near as much attention to the

476
00:27:12,520 --> 00:27:16,640
Speaker 1: markets as we do on a day to day sadly

477
00:27:16,760 --> 00:27:20,120
Speaker 1: minute to minute basis um. And you have to think

478
00:27:20,160 --> 00:27:23,960
Speaker 1: we're with the markets in the fourth quarter of last year,

479
00:27:24,320 --> 00:27:27,160
Speaker 1: before the FED had made its pivot, they were seeing

480
00:27:27,240 --> 00:27:30,680
Speaker 1: very little interest rate action from the FED this year,

481
00:27:30,880 --> 00:27:34,480
Speaker 1: and then they overshot FED guidance this year to get

482
00:27:34,480 --> 00:27:36,440
Speaker 1: into the point where it was almost half a point

483
00:27:36,440 --> 00:27:40,920
Speaker 1: to every meeting, and now markets are pulling back a bit.

484
00:27:41,119 --> 00:27:43,600
Speaker 1: I think the FEDS looking that they've they've they've laid

485
00:27:43,600 --> 00:27:46,080
Speaker 1: out the game plan. We want to get some rate

486
00:27:46,160 --> 00:27:49,800
Speaker 1: hikes underneath our belt, and we're gonna get fifty basis

487
00:27:49,800 --> 00:27:52,639
Speaker 1: points done in June fifty basis points done in July.

488
00:27:53,080 --> 00:27:56,280
Speaker 1: That takes you to the September meeting, and that is

489
00:27:56,400 --> 00:27:58,880
Speaker 1: really the key meeting for I think we're short term

490
00:27:58,880 --> 00:28:02,040
Speaker 1: interest rates sore going because it's all about inflation persistence

491
00:28:02,160 --> 00:28:07,479
Speaker 1: at that point, and if inflation has ebbed sufficiently, then

492
00:28:07,640 --> 00:28:10,960
Speaker 1: they're going to look for an opportunity to dial back

493
00:28:11,119 --> 00:28:13,520
Speaker 1: I think on the rate hikes and slow to quarter

494
00:28:13,640 --> 00:28:17,720
Speaker 1: point rate hikes. But the experience that people have had

495
00:28:17,720 --> 00:28:19,840
Speaker 1: with the FED for the last twenty years or so

496
00:28:20,200 --> 00:28:23,280
Speaker 1: will not particularly help them guide the FED because it's

497
00:28:23,280 --> 00:28:28,440
Speaker 1: different because we've got nineteen late seventies early eighties style inflation.

498
00:28:29,000 --> 00:28:31,160
Speaker 1: We haven't had that in the last twenty thirty well

499
00:28:31,240 --> 00:28:33,200
Speaker 1: obviously in the last forty years during the rethume take,

500
00:28:33,720 --> 00:28:38,360
Speaker 1: and so market responses to the FED, equity market responses

501
00:28:38,400 --> 00:28:40,600
Speaker 1: to the FED aren't We're not going to see the

502
00:28:40,640 --> 00:28:45,719
Speaker 1: same kind of sensitivity of the FED to market moves

503
00:28:46,240 --> 00:28:49,840
Speaker 1: as we've had when inflation was not a problem. So, John,

504
00:28:49,920 --> 00:28:52,080
Speaker 1: it actually is probably appropriate that you guys started the

505
00:28:52,120 --> 00:28:54,720
Speaker 1: conversation talking about football, and that people would rather talk

506
00:28:54,720 --> 00:28:56,880
Speaker 1: about football right now than this because it's basically been

507
00:28:56,920 --> 00:28:59,840
Speaker 1: the same story for a number of weeks now, and basically,

508
00:29:00,000 --> 00:29:02,000
Speaker 1: the Fed is going to do its thing. It's an autopilot.

509
00:29:02,040 --> 00:29:04,760
Speaker 1: Let's reconvene in September and see what happens. It's a

510
00:29:04,840 --> 00:29:08,200
Speaker 1: quiet day for data for data, excuse me going forward?

511
00:29:08,400 --> 00:29:11,040
Speaker 1: What's going to change this narrative? Is there a data

512
00:29:11,120 --> 00:29:13,760
Speaker 1: point or a series of them that you're looking for

513
00:29:13,920 --> 00:29:19,000
Speaker 1: to really guide into September. It's the persistence of inflation, Lisa,

514
00:29:19,520 --> 00:29:24,120
Speaker 1: the Fed. My all my interactions, all my reading that

515
00:29:24,480 --> 00:29:27,960
Speaker 1: the FED is serious about getting inflation back towards the

516
00:29:28,000 --> 00:29:31,479
Speaker 1: two percent target, and the problem is they don't know

517
00:29:31,600 --> 00:29:35,200
Speaker 1: what it's going to take to get there. There's something

518
00:29:35,200 --> 00:29:37,800
Speaker 1: of an odd narrative coming from FED officials where they

519
00:29:37,840 --> 00:29:40,800
Speaker 1: talk about two and a half percent being neutral because

520
00:29:40,840 --> 00:29:45,120
Speaker 1: that's the long run neutral rate when inflation is back

521
00:29:45,160 --> 00:29:48,280
Speaker 1: at two percent target rate, and right now inflation is

522
00:29:48,400 --> 00:29:52,080
Speaker 1: much much higher than that. An underlying inflation is probably

523
00:29:52,120 --> 00:29:54,760
Speaker 1: somewhere around four percent. So the first talking about we

524
00:29:54,760 --> 00:29:56,480
Speaker 1: need to get back to neutral and then maybe we'll

525
00:29:56,480 --> 00:29:59,000
Speaker 1: have to get a little bit restrictive, and throwing that

526
00:29:59,080 --> 00:30:01,240
Speaker 1: two and a half percent number out there as the

527
00:30:01,440 --> 00:30:04,440
Speaker 1: estimate of neutral wants inflations defeat and that's a little

528
00:30:04,440 --> 00:30:06,720
Speaker 1: bit put in the cart before the horse when you're

529
00:30:06,720 --> 00:30:10,800
Speaker 1: trying to defeat inflation. But they are insistent. I think

530
00:30:10,800 --> 00:30:13,440
Speaker 1: they're going to get moved towards that two percent target,

531
00:30:13,760 --> 00:30:16,840
Speaker 1: and so the opportunity to dial back is going to

532
00:30:16,920 --> 00:30:21,600
Speaker 1: depend how much inflation has fallen over the summer. And

533
00:30:22,480 --> 00:30:26,800
Speaker 1: I think that the chances are the inflation doesn't ebb

534
00:30:27,000 --> 00:30:30,240
Speaker 1: as much as the Fed is hoping at this point

535
00:30:30,320 --> 00:30:33,240
Speaker 1: because the broad two things that the broad based nature

536
00:30:33,800 --> 00:30:37,160
Speaker 1: of the price increases, and we calculate in the last

537
00:30:37,200 --> 00:30:41,960
Speaker 1: CPR report, for example, there was the items within CPI

538
00:30:42,040 --> 00:30:44,760
Speaker 1: that were rising at a six per center faster rate

539
00:30:44,960 --> 00:30:47,400
Speaker 1: over the last year, So that that's that's very broad

540
00:30:47,400 --> 00:30:50,560
Speaker 1: based persistence. That's the first thing. A Secondly, it's inflation

541
00:30:50,640 --> 00:30:55,120
Speaker 1: expectations by the public and they are holding in in

542
00:30:55,280 --> 00:31:00,080
Speaker 1: longer term expectations by their fingernails. And yesterday, um we

543
00:31:00,120 --> 00:31:03,720
Speaker 1: had the Philadelphia Fed reporting that tenure inflation expectations by

544
00:31:03,760 --> 00:31:06,160
Speaker 1: businesses had gone up from three to three and a

545
00:31:06,200 --> 00:31:09,360
Speaker 1: half percent, and people have seen food pricing increases and

546
00:31:09,560 --> 00:31:11,840
Speaker 1: very sadly and that the dis conflict in the Ukraine

547
00:31:11,840 --> 00:31:16,400
Speaker 1: has such terrible humanitarian dimensions but the main economic dimension

548
00:31:16,440 --> 00:31:19,400
Speaker 1: for the US may well be higher food prices because

549
00:31:19,440 --> 00:31:22,000
Speaker 1: of the impact on grain exports, because of the impact

550
00:31:22,080 --> 00:31:25,600
Speaker 1: on fertilizers, And that feeds into people's expectations because that

551
00:31:25,720 --> 00:31:28,840
Speaker 1: is repeat shopping every week when they see prices. Right,

552
00:31:28,920 --> 00:31:30,880
Speaker 1: So that was a clinic. I want to go back

553
00:31:30,920 --> 00:31:33,800
Speaker 1: to David mel Pass, John writing and Conrad de Quadros

554
00:31:33,880 --> 00:31:37,040
Speaker 1: of ages and ages ago John, and the bottom line

555
00:31:37,360 --> 00:31:42,480
Speaker 1: is maybe, for whatever reasons you're worry back then has happened.

556
00:31:42,520 --> 00:31:47,400
Speaker 1: We are so far from any constructed Taylor rule right now,

557
00:31:47,480 --> 00:31:50,320
Speaker 1: it's unthinkable. And as you correctly say, we're hanging onto

558
00:31:50,360 --> 00:31:56,200
Speaker 1: an inflation expectations by our fingernails. What the institutional leaders

559
00:31:56,280 --> 00:32:02,320
Speaker 1: do to quell the fear of higher inflation expectations? What's

560
00:32:02,360 --> 00:32:06,920
Speaker 1: the prescription to keep us hanging on by our fingernails? Well,

561
00:32:07,160 --> 00:32:10,200
Speaker 1: I think what we really need is a new monetary

562
00:32:10,200 --> 00:32:15,480
Speaker 1: policy framework strategy. I think one area targeting are you're

563
00:32:15,480 --> 00:32:18,200
Speaker 1: going to go on New Zealand down here? Well, the

564
00:32:18,200 --> 00:32:20,160
Speaker 1: Fed has a two percent inflation talk and how to

565
00:32:20,160 --> 00:32:23,880
Speaker 1: two per cent inflation target that they bemoaned missing it

566
00:32:24,080 --> 00:32:26,040
Speaker 1: to the low end by a few tens of a

567
00:32:26,120 --> 00:32:29,520
Speaker 1: percentage points. So they adopted a deliberate strategy to raise

568
00:32:29,600 --> 00:32:33,240
Speaker 1: inflation and and raise it above two percent by a

569
00:32:33,280 --> 00:32:36,640
Speaker 1: moderate amount for some time. And now careful what you

570
00:32:36,640 --> 00:32:40,400
Speaker 1: wish for. We've got it substantially above two percent for

571
00:32:40,440 --> 00:32:44,880
Speaker 1: a prolonged period of time. And and now what is

572
00:32:44,920 --> 00:32:48,720
Speaker 1: the what is the strategy They need to really reassure

573
00:32:48,760 --> 00:32:53,120
Speaker 1: the public, and in various ways, not just in Fed states,

574
00:32:53,160 --> 00:32:55,680
Speaker 1: that they are very serious in getting inflation down, because

575
00:32:55,680 --> 00:32:59,240
Speaker 1: it turns out inflation is not the stimulus to economic

576
00:32:59,280 --> 00:33:02,600
Speaker 1: activity that the FED hoped. At least moderate inflation, it's

577
00:33:02,640 --> 00:33:04,760
Speaker 1: hard to hold it at two percent, and the public

578
00:33:04,840 --> 00:33:08,400
Speaker 1: hates inflation. Jonathan and I, for example, have talked about

579
00:33:08,440 --> 00:33:10,160
Speaker 1: this a lot about what our mothers think about it,

580
00:33:10,200 --> 00:33:13,080
Speaker 1: and neither of our mothers think that inflation is very

581
00:33:13,120 --> 00:33:15,240
Speaker 1: good for them when they see what's happening to the

582
00:33:15,360 --> 00:33:18,000
Speaker 1: utility bills. John, fail talk about there right now, you

583
00:33:18,080 --> 00:33:20,760
Speaker 1: and writing are living this in real time. The family

584
00:33:20,800 --> 00:33:23,280
Speaker 1: chat yesterday was lighting up, Tom just in terms of

585
00:33:23,280 --> 00:33:27,320
Speaker 1: petrol prices going up, up, up and away, and John,

586
00:33:27,720 --> 00:33:29,480
Speaker 1: just to speak to what the moms are going through

587
00:33:29,560 --> 00:33:31,640
Speaker 1: right now for you and I for personally, that the

588
00:33:31,640 --> 00:33:33,400
Speaker 1: call I get all the time is about utility bill

589
00:33:33,440 --> 00:33:34,840
Speaker 1: at the end of the month. For those listening in,

590
00:33:34,880 --> 00:33:37,080
Speaker 1: don't worry. I pay it and I'm sure John does too.

591
00:33:37,440 --> 00:33:39,840
Speaker 1: And John, things are getting really, really tough for people.

592
00:33:39,880 --> 00:33:42,280
Speaker 1: What we saw this week from the retailers was just

593
00:33:42,320 --> 00:33:45,000
Speaker 1: to shift in where they're spending. I'm not sure if

594
00:33:45,000 --> 00:33:47,800
Speaker 1: we saw a drop off in how much they're spending, though, John,

595
00:33:47,840 --> 00:33:49,920
Speaker 1: because when I hear from the airlines, the airlines are

596
00:33:49,920 --> 00:33:53,200
Speaker 1: talking up how robust things are, how resilient the consumer

597
00:33:53,440 --> 00:33:55,760
Speaker 1: is that the price tolerance is still there. What's your

598
00:33:55,760 --> 00:33:58,560
Speaker 1: read on that, John, Well, I think that's right. I

599
00:33:58,560 --> 00:34:01,760
Speaker 1: think the companies are having difficult team managing an inflation

600
00:34:01,880 --> 00:34:06,040
Speaker 1: environment and an environment in which there are severe labor shortages.

601
00:34:06,440 --> 00:34:09,160
Speaker 1: You know, we need more workers, and you know, this

602
00:34:09,600 --> 00:34:12,000
Speaker 1: is a weekend fortunately across New York City where we're

603
00:34:12,040 --> 00:34:15,640
Speaker 1: going to see those future workers appear as you see

604
00:34:15,640 --> 00:34:20,120
Speaker 1: all the grad's graduates on the street. And that's great

605
00:34:20,160 --> 00:34:22,440
Speaker 1: and that's hopeful for the future. But right now we're

606
00:34:22,440 --> 00:34:28,480
Speaker 1: an environment of labor market constraints, and those constraints are

607
00:34:28,560 --> 00:34:34,799
Speaker 1: causing companies difficulty in managing um managing the businesses, and

608
00:34:34,840 --> 00:34:37,480
Speaker 1: so I think the story of those retailers early in

609
00:34:37,480 --> 00:34:39,680
Speaker 1: the week was really more of a margin story than

610
00:34:39,680 --> 00:34:42,120
Speaker 1: it was a consumer spending story. After all, April retail

611
00:34:42,160 --> 00:34:47,880
Speaker 1: sales looked fairly sprightly numbers, April industrial production looked quite strong.

612
00:34:48,520 --> 00:34:51,440
Speaker 1: Even April housing starts were flat on the first quarter.

613
00:34:51,520 --> 00:34:54,080
Speaker 1: And that that's the most interest sensitive sector economy. Sorry,

614
00:34:54,080 --> 00:34:56,320
Speaker 1: I think all these fears that this is really about

615
00:34:56,680 --> 00:35:01,880
Speaker 1: demand shortages are misplaced. This tremendous scess demand almost two

616
00:35:02,040 --> 00:35:05,239
Speaker 1: job openings per workers. I said, that's good news for

617
00:35:05,320 --> 00:35:10,759
Speaker 1: those graduates in this weekend. Um, but you know, if

618
00:35:10,800 --> 00:35:12,839
Speaker 1: we take some demand out of the economy, we're really

619
00:35:12,880 --> 00:35:17,200
Speaker 1: taking excess demand out. And I'm my fears have recession

620
00:35:17,320 --> 00:35:20,279
Speaker 1: in the short run are are are very low. That

621
00:35:20,360 --> 00:35:23,680
Speaker 1: the problem is the longer term if these inflation expectations

622
00:35:23,719 --> 00:35:26,399
Speaker 1: become embedded. John fifteen seconds on the clock. Finish where

623
00:35:26,440 --> 00:35:31,520
Speaker 1: we started. Results Sunday prediction uh Liverpool win and uh

624
00:35:32,120 --> 00:35:34,839
Speaker 1: Aston Villa Holt City to withdraw on the quadruple. Still

625
00:35:34,840 --> 00:35:37,399
Speaker 1: on there we go, John riding a bring capital. John.

626
00:35:37,480 --> 00:35:41,200
Speaker 1: Thank you. This is the Bloomberg Surveillance Podcast. Thanks for listening.

627
00:35:41,560 --> 00:35:44,920
Speaker 1: Join us live weekdays from seven to ten a m. Eastern.

628
00:35:45,160 --> 00:35:49,160
Speaker 1: I'm Bloomberg Radio and I'm Bloomberg Television each day from

629
00:35:49,239 --> 00:35:54,520
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

630
00:35:54,680 --> 00:35:59,920
Speaker 1: and international relations. And subscribe to the Surveillance podcast on app,

631
00:36:00,000 --> 00:36:03,560
Speaker 1: a podcast, SoundCloud, Bloomberg dot com, and of course, on

632
00:36:03,680 --> 00:36:15,120
Speaker 1: the terminal, I'm Tom keene In. This is Bloomberg, m