WEBVTT - Surveillance: Longer and Higher with Chiavarone 0:00:05.080 --> 0:00:08.520 This is the Bloomberg Surveillance Podcast. I'm Lisa A. Bram 0:00:08.560 --> 0:00:11.600 Woyd's along with Tom Kane and Jonathan Farrow, join us 0:00:11.680 --> 0:00:15.240 each day for insight from the best in economics, geopolitics, 0:00:15.280 --> 0:00:19.480 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.560 --> 0:00:22.759 Spotify and anywhere you get your podcasts, and always on 0:00:22.840 --> 0:00:26.360 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.720 --> 0:00:29.080 Steve Chevron joins us. Now they had a multiss Solutions 0:00:29.080 --> 0:00:31.000 that federated at her as Steve. Wonderful to catch up 0:00:31.000 --> 0:00:33.720 with you bearish for so long, Steve. If I asked 0:00:33.720 --> 0:00:36.120 you this question this morning, do you chase this rally 0:00:36.240 --> 0:00:39.040 or thank this rally? How do you answer it? Yeah, 0:00:39.040 --> 0:00:40.879 we got on the other side of it right at 0:00:40.880 --> 0:00:43.919 the beginning of the year. I think there are opportunities 0:00:43.960 --> 0:00:46.120 for this rally to go longer and fire than you 0:00:46.120 --> 0:00:49.040 would expect. And you've got inflation it's likely to come down. 0:00:49.159 --> 0:00:53.240 Given the year your comps earning season expectations were so poor. 0:00:53.920 --> 0:00:56.920 The market was looking for this kind of first half procession. 0:00:56.960 --> 0:00:58.760 But the labor market is going to take a much 0:00:58.800 --> 0:01:02.440 longer time to to kind of decelerate, so you know, 0:01:02.520 --> 0:01:05.320 we think that this strength can go higher. You traditionally 0:01:05.319 --> 0:01:10.039 have rallies when you have fed pauses, those are usually suckers. 0:01:10.120 --> 0:01:14.160 Rallies usually um and so I think it's premature to 0:01:14.200 --> 0:01:17.160 cancel the recession. I think there's so many signs that 0:01:17.240 --> 0:01:20.039 the economy is likely to head into recession, but it's 0:01:20.080 --> 0:01:22.440 going to take a while. And that's been the hallmark 0:01:22.480 --> 0:01:25.480 of this whole cycle. Every stage has taken longer and 0:01:25.560 --> 0:01:28.280 gone farther than you expect. We think this rally could 0:01:28.360 --> 0:01:32.160 last us through mid year, but ultimately we still do 0:01:32.240 --> 0:01:34.800 have those concerns about recession. We just think that's a 0:01:34.880 --> 0:01:36.880 kind of second half story. And in the meantime, you've 0:01:36.880 --> 0:01:38.560 got to play this. So stay told to me about 0:01:38.560 --> 0:01:41.320 how you playing games through international? Is it through US tech? 0:01:41.480 --> 0:01:44.160 A combination of both. It's exactly what we did. We 0:01:44.160 --> 0:01:45.560 didn't want to jump on the tech train at the 0:01:45.560 --> 0:01:47.920 beginning of the year. We think earnings they're still vulnerable. 0:01:48.160 --> 0:01:51.040 We think valuations are still very much too expensive. We 0:01:51.160 --> 0:01:53.560 get that they're gonna run on this kind of rally, 0:01:53.600 --> 0:01:56.000 but we decided to do it internationally. We did it 0:01:56.080 --> 0:01:59.800 both and developed and e m international. But again, this 0:01:59.880 --> 0:02:02.160 is a rally that we're dating. It's not necessarily one 0:02:02.160 --> 0:02:04.320 that we're marrying, at least not yet. So how do 0:02:04.360 --> 0:02:06.320 you know that the dates over and to break up? 0:02:07.160 --> 0:02:10.240 You gotta keep following the fundamental the fundamentals. If it 0:02:10.280 --> 0:02:12.560 turns out that the market is moving higher or in 0:02:12.600 --> 0:02:15.760 the you know, four thousands, let's say, by midyear, yet 0:02:15.760 --> 0:02:18.680 earnings are still coming down, yield curves are still inverted, 0:02:19.000 --> 0:02:22.440 the labor market is continuing to slow. You know, people 0:02:22.440 --> 0:02:25.000 look at this and they're confounded by the labor market. 0:02:25.760 --> 0:02:29.000 Unemployment doesn't rise before a recession. It rises in one. 0:02:29.120 --> 0:02:31.240 And in fact, it takes usually six months to go 0:02:31.320 --> 0:02:34.080 from the low and unemployment which we just hit, to 0:02:34.160 --> 0:02:36.800 the start of a recession, over which time the unemployment 0:02:36.880 --> 0:02:39.480 rate really barely rises, maybe by two tenths of a percent. 0:02:40.040 --> 0:02:41.880 And so I think you have to look at those 0:02:41.880 --> 0:02:45.560 emerging layoff announcements see if the labor market continues to weaken, 0:02:45.600 --> 0:02:48.080 and if it does, you're gonna need to fade this 0:02:48.160 --> 0:02:50.160 when you go into it, it doesn't the different story. 0:02:50.280 --> 0:02:52.280 But when you when you go into emerging market Steeve, 0:02:52.320 --> 0:02:53.960 how much is this really a story about China and 0:02:53.960 --> 0:02:56.640 the reopening there, and just entirely riding that until we 0:02:56.680 --> 0:02:59.520 get more concrete data on just the contours of what 0:02:59.600 --> 0:03:02.640 that looks. I mean, it's certainly a big part of it, 0:03:02.680 --> 0:03:04.880 but it's not it's not the entirety of it. I'd 0:03:04.880 --> 0:03:07.320 say the other key factors here. You know, you do 0:03:07.360 --> 0:03:09.760 have a FED that's likely to pause. Emerging markets in 0:03:09.760 --> 0:03:12.040 general tend to do better when the Feds not hiking. 0:03:12.400 --> 0:03:14.400 You've got a dollar that's weekending, and I think it 0:03:14.440 --> 0:03:17.280 may weaken right where you were just talking about, maybe 0:03:17.280 --> 0:03:19.280 the ECB is gonna be a little bit more aggressive 0:03:19.320 --> 0:03:21.000 than the Fed this year in terms of rate hikes. 0:03:21.320 --> 0:03:23.920 You have to expect at some point Japan might have 0:03:23.960 --> 0:03:26.880 to abandon yield curve controls, and so you may have 0:03:27.040 --> 0:03:29.880 this scenario where a weaker dollar, no more rate hikes, 0:03:29.919 --> 0:03:32.600 plus a China reopening gives you, you know, a decent 0:03:32.600 --> 0:03:35.440 window here. The stocks are certainly reacting to that safe 0:03:35.480 --> 0:03:37.480 Let's get to the Fed on Wednesday. If I'm in 0:03:37.520 --> 0:03:39.560 that news conference and I was a journalist, this is 0:03:39.560 --> 0:03:41.560 the question I would ask, do you believe we've seen 0:03:41.560 --> 0:03:45.560 an unwarranted aising of financial conditions? Very simple let's see 0:03:45.600 --> 0:03:47.040 how he answers it. How do you think he will 0:03:47.080 --> 0:03:49.760 approach that question, because it's very likely to be host 0:03:50.600 --> 0:03:53.120 I mean, I think they've got to be frustrated, John. 0:03:53.120 --> 0:03:54.839 I mean, if you look relative to a year ago, 0:03:54.880 --> 0:03:57.240 not not necessarily the peaks mid year, but one full 0:03:57.320 --> 0:03:59.880 year ago, the labor markets incrementally hotter than it was 0:04:00.000 --> 0:04:03.080 faelve months ago. Inflation is as hot, if not as hot, 0:04:03.080 --> 0:04:05.080 as it was twelve months ago. Now it's it's coming down. 0:04:05.120 --> 0:04:07.080 So I don't I don't want to discount that. But 0:04:07.160 --> 0:04:10.480 financial conditions are much looser um, and they've spent so 0:04:10.560 --> 0:04:14.120 much political capital trying to defend this median dot, you 0:04:14.160 --> 0:04:16.440 would think that they're going to have to see it through. 0:04:16.440 --> 0:04:19.080 I don't think that you're going to have a recession 0:04:19.200 --> 0:04:22.119 or not because of you know, an extra five basis points. 0:04:22.120 --> 0:04:24.440 So my guess is if they go to year, they 0:04:24.520 --> 0:04:27.480 might do two more at least get to that median dot. 0:04:27.880 --> 0:04:30.040 And I would expect that he would push back against 0:04:30.040 --> 0:04:33.000 these financial conditions. Some that being said, I have not 0:04:33.160 --> 0:04:35.480 had the best luck at predicting what Pal is going 0:04:35.520 --> 0:04:37.640 to say. I've had a much better job predicting what 0:04:37.680 --> 0:04:40.320 he's going to do. UM, So we'll say, I'll be 0:04:40.360 --> 0:04:42.640 watching along with you, and we'll see how he responds. 0:04:42.680 --> 0:04:44.839 But you know he's gonna get that question. See if 0:04:44.839 --> 0:04:47.440 can you pair that idea with your bullishness right now? 0:04:47.560 --> 0:04:49.960 The riding of the rally? Why is it not going 0:04:50.000 --> 0:04:52.560 to be successful if the FED does try to job 0:04:52.560 --> 0:04:57.560 bone down this market? Why? Well, because I think that 0:04:57.640 --> 0:05:00.320 the data is going to look encouraging, and the data 0:05:00.400 --> 0:05:02.800 on the road to a soft landing doesn't look very 0:05:02.839 --> 0:05:04.960 different than the data on the road to recession. Right. 0:05:05.240 --> 0:05:07.960 Inflation is going to come down. You know, earnings are 0:05:07.960 --> 0:05:10.599 gonna come down. You would expect that in a soft landing, 0:05:10.600 --> 0:05:14.839 but maybe not catastrophically. You expect the labor market too slow. 0:05:14.960 --> 0:05:17.400 And so you've had a market that for the better 0:05:17.440 --> 0:05:19.560 part of a year has wanted a rally on any 0:05:19.600 --> 0:05:21.800 sign of good news. I think they're going to get 0:05:21.880 --> 0:05:24.880 data that that can be construed that way. Um. Ultimately, 0:05:24.920 --> 0:05:27.040 I think that is on the road to recession. It 0:05:27.080 --> 0:05:29.960 would be a historical anomaly to have this much of 0:05:29.960 --> 0:05:32.000 the yield curve and birded. And but I could go 0:05:32.040 --> 0:05:34.960 through all the various different statistics and not have a recession. 0:05:35.000 --> 0:05:38.000 But if you go back every cycle the market has 0:05:38.000 --> 0:05:40.880 a big hurrah rally like that. It did it in nineteen, 0:05:41.160 --> 0:05:43.680 it did it in two thousand and six, and so 0:05:43.880 --> 0:05:46.600 I think that that's those are the powerful forces. The 0:05:46.640 --> 0:05:48.240 market's going to see what they want in this rare 0:05:48.279 --> 0:05:50.720 stark test, and there's been a bullish lean for the 0:05:50.800 --> 0:05:53.920 last year, and usually the last one is the biggest one. 0:05:53.960 --> 0:05:56.200 And I think that's you know, at least what we're 0:05:56.200 --> 0:05:59.600 in it can last six months, it could, and so 0:06:00.000 --> 0:06:01.479 you know, if you're a long term investor, you might 0:06:01.480 --> 0:06:03.560 be able to ignore that. But if you're trying to manage, 0:06:04.000 --> 0:06:07.280 you know, through the markets is our charge, I think 0:06:07.320 --> 0:06:08.880 you have to be cognizant of that risk. Right here, 0:06:09.080 --> 0:06:11.400 it's lasted four weeks so far this year and twenty three. 0:06:11.400 --> 0:06:13.480 Steve gads catch up, but he has always Steve Chevron 0:06:13.520 --> 0:06:15.600 there a federated is getting you set up for the 0:06:15.640 --> 0:06:28.920 Federal Reserve this coming Wednesday. Pay rolls, the FED, the 0:06:28.960 --> 0:06:30.800 e c B, the Bank of England and learnings in 0:06:30.800 --> 0:06:33.040 between joining us now to discuss I'm really pleased to say, 0:06:33.360 --> 0:06:35.000 is Ken trope In, the founder and chairman of Graham 0:06:35.080 --> 0:06:39.240 Capital Hedge Fund with eighteen billion dollars under management. Can 0:06:39.400 --> 0:06:41.479 fantastic to catch up with you, sir, Thanks for being 0:06:41.520 --> 0:06:44.640 with us. Let's start the amount of central bank tighting 0:06:44.640 --> 0:06:46.480 we've seen over the last twelve months. There is a 0:06:46.560 --> 0:06:49.680 feeling that we can get away with something mild, something short, 0:06:49.720 --> 0:06:51.719 and then just move on. Can do you share that 0:06:51.760 --> 0:06:55.920 feeling that view? I think that's too optimistic personally. Um. 0:06:55.960 --> 0:06:59.640 You know, if you think about how the nineteen to 0:06:59.760 --> 0:07:03.599 that twenty two compared to the previous decade. UH In 0:07:03.640 --> 0:07:06.160 the period between the end of the financial crisis two 0:07:06.160 --> 0:07:09.920 thousands ten two thousand twenty one, we saw a total 0:07:10.080 --> 0:07:15.080 of thirteen bases point equivalent rate hikes between the ECB, 0:07:15.720 --> 0:07:19.080 the Bank of England and the FEED. In two thousand 0:07:19.200 --> 0:07:24.440 twenty two, one year, we saw forty basis point rate moves. 0:07:24.440 --> 0:07:26.920 Obviously some of them came in fifty or seventy five 0:07:26.920 --> 0:07:30.600 at a crack. So you've seen an enormous sea change 0:07:30.680 --> 0:07:34.560 in financial conditions and I don't really think the market 0:07:34.600 --> 0:07:39.520 reflects that necessarily um in epuity valuations, So how would 0:07:39.520 --> 0:07:41.960 you lean against it? But would you basically move against 0:07:42.040 --> 0:07:44.480 some of the tech rally? Would you just go more 0:07:44.480 --> 0:07:48.160 into bonds um, you know, I think it's a good 0:07:48.200 --> 0:07:53.680 time to be um very conservative. I think one of 0:07:53.720 --> 0:07:57.640 the things that I think about is that for the 0:07:57.760 --> 0:08:00.440 last eleven years prior to twenty two, you were sort 0:08:00.480 --> 0:08:03.960 of rewarded for buying every dip in equities. I think 0:08:04.000 --> 0:08:07.200 that is the psychology of investors broadly. I think that 0:08:07.280 --> 0:08:11.600 psychology probably needs to shift. I think good ten percent 0:08:11.680 --> 0:08:15.600 rally so far this year in equities seems um like Okay. 0:08:15.600 --> 0:08:17.400 There was a big sell off last year and people 0:08:17.440 --> 0:08:20.080 wanted to get back in with the sense that the 0:08:20.160 --> 0:08:22.640 Fed was gonna start easing in the second half of 0:08:22.680 --> 0:08:24.880 the year. We're not so convinced that they're going to 0:08:24.960 --> 0:08:26.840 ease in the second half of this year. And there's 0:08:26.840 --> 0:08:29.240 still a lot of eight hikes price then between the 0:08:29.280 --> 0:08:30.880 Fed the e c BE in the Bank of England. 0:08:30.920 --> 0:08:33.520 So I would be really cautious personally. What does it 0:08:33.559 --> 0:08:36.240 mean to be cautious Canada time? When last year the 0:08:36.679 --> 0:08:40.800 fort didn't work and frankly the bonders proponent, a component 0:08:40.840 --> 0:08:44.040 of the portfolio, had the worst year on record if 0:08:44.080 --> 0:08:47.120 you look at certain denominations. Is this a new time 0:08:47.240 --> 0:08:50.400 of that being haven trade or is that still really 0:08:50.440 --> 0:08:53.320 a difficult area. I think that's a difficult area. I 0:08:53.360 --> 0:08:55.760 like the two year you know, you've got the yield 0:08:55.760 --> 0:08:59.480 cerve really inverted here, and so I think to be 0:09:00.200 --> 0:09:04.280 in one year notes and and and be patient makes 0:09:04.280 --> 0:09:06.520 a lot of sense. As you said, last year was 0:09:06.559 --> 0:09:10.440 the worst year for a sixty forty portfolio since in 0:09:10.520 --> 0:09:13.439 thirty seven years. I mean, it's crazy kind of you 0:09:13.520 --> 0:09:16.439 thinking inflation is going to be stick here then people anticipate. 0:09:16.520 --> 0:09:20.280 Is that what your position? Somewhat stickier? Yes, I mean 0:09:20.320 --> 0:09:24.000 it is definitely cooling. But you know, uh, energy prices 0:09:24.440 --> 0:09:27.360 haven't gone down that much. They've come off the highs. 0:09:27.400 --> 0:09:30.200 But if you think about the world where in uh, 0:09:30.400 --> 0:09:33.240 you know, there's not any energy development in the United States, 0:09:33.480 --> 0:09:36.480 green policies, which we probably need because of global warming, 0:09:37.000 --> 0:09:40.760 really discourage more energy to development. So resources are tight 0:09:41.000 --> 0:09:45.000 in inflation. Uh. If you look at labor, certainly their 0:09:45.120 --> 0:09:49.280 softness and tech and finance. On the other hand, CBS 0:09:49.400 --> 0:09:54.920 and Walgreens are limiting hours because they can't get enough employees. So, UM, 0:09:54.960 --> 0:09:58.520 I'm not convinced that we're gonna see inflation get anywhere 0:09:58.520 --> 0:10:02.400 near target. UH, as soon as the market would like. Again, 0:10:02.440 --> 0:10:05.200 what does that leave for you curve right now deeply inverted. 0:10:05.280 --> 0:10:07.040 Some people think we can get that return of the 0:10:07.080 --> 0:10:09.080 bull statement because the Federal Reserve is going to cut 0:10:09.360 --> 0:10:12.120 safe the day deliver that statement that we traditionally get. 0:10:12.200 --> 0:10:13.800 Can of you push them back against that too? Then 0:10:14.679 --> 0:10:17.480 I think that your curves moved a little too much. Uh. 0:10:18.040 --> 0:10:21.040 You know, for all of the years I've been in finance, UH, 0:10:21.640 --> 0:10:25.480 there was term premium and duration risk priced in the bombs. 0:10:25.720 --> 0:10:28.360 There is none today. It's the opposite. That doesn't make 0:10:28.360 --> 0:10:30.480 a lot of sense to me. Uh. If you think 0:10:30.480 --> 0:10:33.640 we have some inflation that may be around longer than 0:10:33.679 --> 0:10:36.120 another six or twelve months. Can We've been talking a 0:10:36.160 --> 0:10:38.679 lot about anecdotal science of weakness in the labor market, 0:10:38.679 --> 0:10:40.840 whether it's big tech or even the big banks that 0:10:40.920 --> 0:10:43.760 have been cutting jobs on the margin. From your experience, 0:10:44.120 --> 0:10:47.000 do you think that those anecdotes reflect a real softening 0:10:47.000 --> 0:10:48.600 in the labor picture or do you think that there 0:10:48.720 --> 0:10:53.199 is more sustained strength than people realize. I think it's bifurcated. 0:10:53.240 --> 0:10:58.000 I think UM and high income UH and in UH 0:10:58.400 --> 0:11:00.720 jobs such as tech and finance ans and what have you, 0:11:00.960 --> 0:11:04.240 there's definitely softness. And I think in the service sector 0:11:04.360 --> 0:11:08.600 or uh, you know, in more blue collar jobs not 0:11:08.679 --> 0:11:12.199 so much. And I also think we have the psychology 0:11:12.200 --> 0:11:15.440 of a lot of employees who are younger who have 0:11:15.520 --> 0:11:19.480 never uh you know, endured a recession, and so they're 0:11:19.480 --> 0:11:22.840 being very patient about looking for jobs if they're laid off. 0:11:22.880 --> 0:11:25.160 That's a new phenomenon. I think you can just to 0:11:25.160 --> 0:11:27.720 find a word from you your favorite trade this year, 0:11:27.760 --> 0:11:29.160 and you do not get to say the two year 0:11:29.240 --> 0:11:32.080 because you've said that already. What is it, kent, Well, 0:11:32.120 --> 0:11:33.679 the two years not a trade, It's just a good 0:11:33.679 --> 0:11:37.040 place to be consecutive. Uh. I think if I had 0:11:37.080 --> 0:11:40.520 to pick one thing after stocks have got up ten percent, 0:11:41.280 --> 0:11:44.200 I probably would lean short. You've gotta shot right now. 0:11:46.000 --> 0:11:51.079 We're mixed are Some of our quant systems are long equities, 0:11:51.400 --> 0:11:54.079 while our discustiony traders are basically short. It's a part 0:11:54.120 --> 0:11:55.679 of the equity market can that you think needs to 0:11:55.679 --> 0:12:00.320 be shorted more than most. Um. I think, well, if 0:12:00.360 --> 0:12:03.240 you look at the Hank Sing that's gone up an 0:12:03.400 --> 0:12:06.800 enormous amount in the last three months, that looks really 0:12:06.880 --> 0:12:10.720 expensive to me. And I think broadly, uh, in the US, 0:12:11.120 --> 0:12:14.160 if we are going to see a recession, sometime this year. 0:12:14.480 --> 0:12:16.400 I don't think that's pricedons to the SMP at all. 0:12:16.840 --> 0:12:19.280 Can this was great? Is it nice to mac Rows back? Ken? 0:12:19.760 --> 0:12:22.439 Don't you agree it was the most exciting time to 0:12:22.520 --> 0:12:25.720 be in macro in fifteen years. There's so much going 0:12:25.760 --> 0:12:29.280 on between what's happening uh in the Ukraine, what's happening 0:12:29.360 --> 0:12:32.880 in inflation, all of these rate hikes. Um, you know, 0:12:33.679 --> 0:12:37.679 it's kind of h a lifetime opportunity or who knows, 0:12:37.840 --> 0:12:40.200 You never know exactly what happens, but it's really exciting 0:12:40.240 --> 0:12:42.000 to be in Macro. Well, Can is exciting to talk 0:12:42.000 --> 0:12:44.400 to you, and let's do this more often. Fantastic as always. 0:12:44.440 --> 0:12:46.679 Kentrop in the of Graham Capital, a hedge fund with 0:12:46.800 --> 0:12:54.800 eighteen billion a u M. Laura Raim, the chief US 0:12:54.800 --> 0:12:57.640 Economists FS Investments Joints US right now, So, Laura, this 0:12:57.840 --> 0:13:01.160 is the question going into Wednesday in that news conference, 0:13:01.200 --> 0:13:04.320 if it's not addressed in a statement, the recent easing, 0:13:04.559 --> 0:13:08.600 the recent easing of financial conditions warranted or not? And Laura, 0:13:08.720 --> 0:13:11.360 I wonder how you think one he'll answer that question 0:13:11.480 --> 0:13:14.760 and to whether this market and market participants will actually 0:13:14.800 --> 0:13:18.960 listen to him, you know, whether they're warranted is really 0:13:19.280 --> 0:13:23.040 a reflection of the fact that the markets have been trained, 0:13:23.360 --> 0:13:26.800 in part by the FED to look so far ahead 0:13:27.000 --> 0:13:29.840 of the curve on the economy that I think they 0:13:29.880 --> 0:13:32.319 can be too hasty. And in this case, there was 0:13:32.400 --> 0:13:35.280 so much talk about a recession at the beginning of 0:13:35.400 --> 0:13:38.000 last year, recession at the beginning of this year. To me, 0:13:38.280 --> 0:13:40.360 you know, you really need to look for the timing 0:13:40.440 --> 0:13:44.559 of this almost a year after the FED stops raising rates, 0:13:44.880 --> 0:13:49.520 which is why I've penciled in late for an economic slowdown. 0:13:50.000 --> 0:13:53.600 And it means that at earliest the FED would really 0:13:53.679 --> 0:13:58.800 not consider sort of lowering the head curve and cutting 0:13:58.920 --> 0:14:01.800 rates until much later in the year. And for all 0:14:01.880 --> 0:14:04.760 of those you sort of paint that macro backdrop, and 0:14:04.920 --> 0:14:08.040 it means that markets who are pricing in three rate 0:14:08.120 --> 0:14:11.280 cuts this year are have just gotten too aggressive. That's 0:14:11.400 --> 0:14:14.439 pulled down the front end. And look at what we've had. 0:14:15.000 --> 0:14:18.760 Mortgage refinancings have reignited again. We're about to see the 0:14:18.880 --> 0:14:22.360 housing market come back to life. The set hasn't really 0:14:22.640 --> 0:14:25.480 broken anything. They have put a pin in all of 0:14:25.560 --> 0:14:28.200 these interest rate sensitive sectors of the economy. And guess 0:14:28.240 --> 0:14:30.680 what when raids come down, those all reflare, and I 0:14:30.760 --> 0:14:33.000 think that's what the push and pull we're going to 0:14:33.080 --> 0:14:36.840 see over the next year, and really it's going to 0:14:36.960 --> 0:14:39.480 start this Wednesday. Lots to unpank that, Laura. Can I 0:14:39.600 --> 0:14:41.040 just pick up on your call that you don't think 0:14:41.080 --> 0:14:44.440 the waitness comes until the year end? Laura, what guides 0:14:44.520 --> 0:14:49.000 that view? Okay, you have to take out a microscope 0:14:49.240 --> 0:14:53.280 to find weakness in the labor market. We've had upsetting 0:14:53.440 --> 0:14:57.520 headlines on in some key industries like the tech sector, 0:14:58.080 --> 0:15:00.320 but the reality is these are set or is that 0:15:00.480 --> 0:15:03.680 over higher during the pandemic. They're trying to right size 0:15:03.720 --> 0:15:06.120 that right now. And to me, when you look at 0:15:06.240 --> 0:15:09.600 the broader initial claims, the unemployed rate and three point 0:15:09.720 --> 0:15:13.000 five percent jold state of the vacancy rate, I mean, 0:15:13.360 --> 0:15:16.520 go down the list, Jonathan, pick anything. It is just 0:15:17.080 --> 0:15:21.480 very difficult to find any signs of outright weakness, normalization, cooling, 0:15:22.000 --> 0:15:24.560 all of that is actually healthy. And then on the 0:15:24.640 --> 0:15:28.440 consumer side, I would argue there's a similar situation. There's 0:15:28.440 --> 0:15:31.040 a been a lot of talk about delinquencies picking up 0:15:31.120 --> 0:15:35.040 and consumer banks are being cautious. That is their job. 0:15:35.600 --> 0:15:37.040 I think at the end of the day, when you 0:15:37.200 --> 0:15:42.120 saw the earnings from MasterCard, from all from American Express. 0:15:42.200 --> 0:15:45.480 The consumer is healthy with jobs where they are. I 0:15:45.600 --> 0:15:49.080 think the household can continue to spend and lower inflation 0:15:49.200 --> 0:15:51.080 has a role to play in that too. It's not 0:15:51.200 --> 0:15:54.640 a strong growth picture, it's a grind, but I think 0:15:54.680 --> 0:15:57.720 it stays positive. Laura, you said the FEN hasn't broken anything, 0:15:57.760 --> 0:15:59.760 and then you talk about all these pockets of strength 0:16:00.040 --> 0:16:02.240 that could keep inflation hotter than the FED would like. 0:16:02.680 --> 0:16:04.960 Is the implication here that the FED has to break 0:16:05.080 --> 0:16:08.320 something and then what is it that they have to break? Well, 0:16:08.480 --> 0:16:10.520 that's what a recession is at the end of the day. 0:16:10.600 --> 0:16:13.320 It means that they have taken something and pushed it 0:16:13.440 --> 0:16:16.640 too far. Our economy doesn't like to contract, so it 0:16:16.760 --> 0:16:20.760 needs something to be not working right to to really 0:16:21.640 --> 0:16:25.480 fall into contraction. So you know, they have talked a 0:16:25.520 --> 0:16:29.520 lot about the labor market. They've talked a lot about wages, 0:16:29.800 --> 0:16:33.320 and you know, we need wages to come down pretty significantly, 0:16:33.400 --> 0:16:35.720 and I'm just not sure that's going to happen given 0:16:36.440 --> 0:16:41.040 the limited number of job availability. That at the end 0:16:41.080 --> 0:16:43.840 of I think when they think about targeting something to 0:16:43.960 --> 0:16:47.160 really slow the economy at a broader level, it often 0:16:47.480 --> 0:16:51.760 is the labor market. But I think right now they're 0:16:51.840 --> 0:16:56.520 content with some broader slowing. They just see the need 0:16:56.600 --> 0:16:58.680 to continue to raise rates. I don't think that's going 0:16:58.760 --> 0:17:01.240 to change. It's time for them to slow down, no 0:17:01.440 --> 0:17:03.120 doubt about it. I think they're doing the right thing 0:17:03.160 --> 0:17:05.680 over the next several meetings. So a lot of people 0:17:05.720 --> 0:17:07.600 took us some signal from the Bank of Canada, which 0:17:07.600 --> 0:17:09.200 has been on the front foot when it comes to 0:17:10.040 --> 0:17:12.640 their moves in their central bank, and they just indicated 0:17:12.680 --> 0:17:14.320 they're going to go twenty five basis points. They went 0:17:14.359 --> 0:17:17.560 twenty five basis points and they potentially will hold indefinitely. 0:17:17.880 --> 0:17:20.160 Why is the Fed not going to do that since 0:17:20.200 --> 0:17:22.440 it doesn't seem to bother them that much the financial 0:17:22.440 --> 0:17:25.800 conditions keep easy, I would I would push back that 0:17:25.880 --> 0:17:28.199 it may bother them somewhat. I mean, I think they 0:17:28.320 --> 0:17:32.000 see it. I think they recognize that UM, when long 0:17:32.119 --> 0:17:36.600 term magistrates come down, it undoes some of their rate 0:17:36.680 --> 0:17:40.959 hike activity. And UM, while I think that they're going 0:17:41.040 --> 0:17:44.440 to continue to monitor this, I think they recognize that 0:17:44.560 --> 0:17:46.840 they can't only focus on it because it's not their 0:17:47.320 --> 0:17:50.920 main mandate. Their mandate is inflation, and until we see it, 0:17:51.040 --> 0:17:55.160 not just hit two percent, but hit inflation persistently at 0:17:55.200 --> 0:17:59.440 two percent, they have wiggle room to manage expectations, and 0:17:59.560 --> 0:18:01.480 finance conditions are going to be a big part of that. 0:18:01.840 --> 0:18:04.600 I think they are going to keep watching financial conditions 0:18:04.720 --> 0:18:07.520 very closely, especially over the next six months. We catching 0:18:07.600 --> 0:18:10.520 up with Gimpianco Bianco Research a little bit later this morning, 0:18:11.000 --> 0:18:12.480 and in this recent note he said, I think the 0:18:12.560 --> 0:18:14.880 narrative and attention should now turn to how far down 0:18:14.960 --> 0:18:17.879 we're going to go, not whether inflation has paid a 0:18:17.920 --> 0:18:20.080 lot of Can you speak to that? Are we coming 0:18:20.119 --> 0:18:23.000 down to four Are we going to find it difficult 0:18:23.240 --> 0:18:26.199 to get down toitude? Yeah, the inflation numbers are going 0:18:26.280 --> 0:18:29.440 to look so choppy. This is just because year on 0:18:29.600 --> 0:18:33.359 your base effects are going to make the headline number 0:18:33.840 --> 0:18:37.359 just really come down very fast. I think, you know, 0:18:37.520 --> 0:18:42.000 we've now sort of contorted ourselves in the monthly CPI 0:18:42.160 --> 0:18:46.920 numbers of looking at you know, services wages that are 0:18:47.160 --> 0:18:50.600 excluding shelter. I mean we've gotten I think to micro 0:18:50.760 --> 0:18:53.159 on the CPI data. We need to step back and 0:18:53.240 --> 0:18:56.119 we need to include wages in that conversation. We need 0:18:56.240 --> 0:18:59.640 to include sort of numbers that are in the medium term, 0:18:59.720 --> 0:19:02.680 for is just the near term inflation expectations are part 0:19:02.720 --> 0:19:05.879 of that too, and those have been stickier. So to me, 0:19:06.080 --> 0:19:09.160 it's really a more holistic inflation picture, and I think 0:19:09.240 --> 0:19:11.480 the FED is going to be very focused on more 0:19:12.000 --> 0:19:16.080 than just one piece of cp I, and the labor 0:19:16.520 --> 0:19:19.359 dynamics are very critical to that. That's what their medium 0:19:19.440 --> 0:19:21.520 term models key off of, Laura, what are you watching 0:19:21.560 --> 0:19:24.000 most closely this week in terms of the economic data 0:19:24.280 --> 0:19:27.080 the FED meeting as well as earnings. I mean, nothing 0:19:27.160 --> 0:19:29.359 beats the payroll reports, Lisa. You have to pay a 0:19:29.480 --> 0:19:31.960 ton of attention to those, so to me that we're 0:19:32.000 --> 0:19:33.680 really going to end with the bang on that. I 0:19:33.720 --> 0:19:35.840 think the employment cost index numbers are going to be 0:19:35.920 --> 0:19:48.800 really important this week as well. It's fascinating joint to 0:19:48.840 --> 0:19:50.680 us not to talk about the earnings. Tom Fort, the 0:19:50.720 --> 0:19:53.480 City of Research analyst at DA Davidson, not to I 0:19:53.560 --> 0:19:56.000 have some sympathy for you, sir, because the earnings camenda 0:19:56.320 --> 0:19:58.840 for big tech, the big names in the space of 0:19:58.880 --> 0:20:01.480 what fortun Now, Tom, I won't ask you to pick 0:20:01.520 --> 0:20:04.159 your favorite babybe Bob. If you had to pick one 0:20:04.240 --> 0:20:06.160 endings report right now that I could give to your tomb, 0:20:06.200 --> 0:20:08.880 what would it make So if I had to see 0:20:09.200 --> 0:20:10.920 ear news report right now, the one that I want 0:20:10.920 --> 0:20:14.200 to see is Amazon. So I'm curious. The term I 0:20:14.240 --> 0:20:16.640 think that you're going to see this quarter is beaten layoff. 0:20:17.080 --> 0:20:20.880 So to what extent are these big technology companies laying 0:20:20.920 --> 0:20:25.160 off employees but still outperforming against expectations? So I think 0:20:25.200 --> 0:20:28.280 that these layoffs put these companies in a position where 0:20:28.280 --> 0:20:31.280 it's more difficult for them to show better than expected 0:20:31.359 --> 0:20:34.119 sales and profits. Because if they had better than expected 0:20:34.160 --> 0:20:37.200 sales and profits, why are they cutting head council significantly. 0:20:37.520 --> 0:20:39.840 It's a really important question, tom, So let's ask the 0:20:39.880 --> 0:20:44.040 question as to why Apple isn't cutting head count. So 0:20:44.200 --> 0:20:46.719 Apple will cut head count, they'll do it in one 0:20:46.760 --> 0:20:49.879