WEBVTT - Banking, Markets, And The Fed (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news on the Bloomberg Markets Podcast, 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.520 at Bloomberg dot com slash podcast. I've been in the 0:00:21.560 --> 0:00:24.760 equity research game a long time on Wall Street, and 0:00:24.840 --> 0:00:27.400 ever since I've been on the street, the folks at Keith, 0:00:27.600 --> 0:00:31.440 Brett and Woods have been the acts in banking stocks. 0:00:31.440 --> 0:00:35.000 And what I like about their research, Um, it's big 0:00:35.080 --> 0:00:37.839 cap and it's small cap, and they cover it on. 0:00:38.000 --> 0:00:40.320 If you want to get really smart on the banking biz, 0:00:40.720 --> 0:00:42.720 you go to those folks at KBWI. There now with 0:00:42.800 --> 0:00:45.960 Stephole Company, Chris McGrady joins us. He's head of US 0:00:46.360 --> 0:00:50.880 bank Research. Chris, give us a sense of what your 0:00:51.080 --> 0:00:56.840 banking call is right here. Um, you know, for just 0:00:56.920 --> 0:00:59.040 a sector in general, people, we've seen the interest rates 0:00:59.160 --> 0:01:01.959 rise to eight people like me. That's a good thing 0:01:02.000 --> 0:01:06.480 for interest rate margin. But give us the expert call. Sure, 0:01:06.800 --> 0:01:10.240 thanks for having me on. Um. Yeah, at the highest level, 0:01:10.760 --> 0:01:13.760 higher rates are are actually very good for the banking industry, 0:01:13.840 --> 0:01:16.920 one of the few sectors of the economy where rates 0:01:17.200 --> 0:01:20.480 moving higher will actually expand profit margins UM. And so 0:01:20.560 --> 0:01:22.800 our call on the group has been for the past 0:01:22.920 --> 0:01:25.840 year that you want to own the banks. We we 0:01:25.920 --> 0:01:29.080 made a call last September that we saw loan demand 0:01:29.319 --> 0:01:33.039 returning after after a couple of years of absence. We 0:01:33.080 --> 0:01:36.040 saw rates poised to move higher, and we really thought 0:01:36.040 --> 0:01:38.080 the balance sheets were in great shape. So you put 0:01:38.120 --> 0:01:41.960 those factors together and what you're seeing now is revenue 0:01:41.959 --> 0:01:45.800 growth accelerating and that's leading to UM recently some better 0:01:45.800 --> 0:01:50.200 performance in the group. So UM do you expect to continue? 0:01:50.280 --> 0:01:52.560 I mean, how difficult is it to to look out 0:01:52.680 --> 0:01:55.520 as the FED UM kind of fights the market, or 0:01:55.520 --> 0:01:59.520 the markets fighting the FED, which Paul says they shouldn't do. Yeah, 0:01:59.600 --> 0:02:02.120 visibilit it is tough, right, The markets can change on 0:02:02.160 --> 0:02:04.280 a dime. UM. And as you've seen over the past 0:02:04.280 --> 0:02:08.400 few days, UM inflation expectations UM coming down a bit 0:02:08.840 --> 0:02:11.080 has actually put a bit into the market and so 0:02:11.800 --> 0:02:16.320 visibility is improving UM and and right now we believe 0:02:16.880 --> 0:02:20.440 that revenue growth is poised to accelerate, particularly for the 0:02:20.480 --> 0:02:23.080 mid cap banks. UM. So you have the largest banks 0:02:23.080 --> 0:02:25.760 which have capital markets pressures, and those those revenues are 0:02:25.800 --> 0:02:28.200 really and have been in a recession for the past 0:02:28.240 --> 0:02:30.640 couple of quarters. If you go down cap to your 0:02:30.680 --> 0:02:34.360 earlier comments, we see some really strong growth emerging, and 0:02:34.360 --> 0:02:36.000 we saw it this past quarter, and we see it 0:02:36.040 --> 0:02:38.560 for the next several quarters. So so we think even 0:02:38.560 --> 0:02:41.880 though inflationary pressures are with us, we think revenue growth 0:02:42.000 --> 0:02:44.760 will accelerate and exceed that. And what you're gonna see 0:02:44.800 --> 0:02:47.480 is expanding profit margins. What about head count? You know, 0:02:47.480 --> 0:02:50.280 I was just walking back from the gym with a 0:02:50.280 --> 0:02:52.200 guy who was on the buy side for the last 0:02:52.240 --> 0:02:55.960 thirty years and he's now shifted over UM to investment 0:02:55.960 --> 0:02:58.800 banking just because he saw the layoffs coming. And he says, 0:02:58.840 --> 0:03:03.919 everybody on the streets sees it. You know, uh, right now, talent, 0:03:04.120 --> 0:03:05.920 you know, good talent is hard to come by, and 0:03:06.000 --> 0:03:10.320 so right now, UM, the employees have a lot of leverage. UM. 0:03:10.360 --> 0:03:12.760 You know, what we've seen over the past year is 0:03:12.800 --> 0:03:16.320 wage pressures increase UM and there maybe you know, this 0:03:16.400 --> 0:03:19.240 is a cyclical industry. There could be layoffs over over 0:03:19.280 --> 0:03:23.440 the cycle, but right now that the industry is fairly profitable, 0:03:23.440 --> 0:03:26.280 they're fairly efficient, and they're figuring out how to work 0:03:26.320 --> 0:03:29.079 in a world where it's, um, we're remote. Is part 0:03:29.080 --> 0:03:32.000 of the part of the part of the narrative on Paul. 0:03:32.160 --> 0:03:35.640 Weren't we just talking aboutale about bonuses, Like last year 0:03:35.640 --> 0:03:39.560 everybody was like, pay me double and this year it's like, 0:03:39.880 --> 0:03:41.880 please give me what you gave me last year. If 0:03:42.280 --> 0:03:45.680 is that not the case? Chris? You know, talent is 0:03:45.680 --> 0:03:47.560 always going to be in demand. If if if good talent. 0:03:47.560 --> 0:03:51.200 We always want to pay for talent. Um, but there's 0:03:51.200 --> 0:03:54.640 still choices out there. A mobility is pretty high, but um, 0:03:55.520 --> 0:03:58.360 you know, but talent is is something that that is 0:03:58.360 --> 0:04:00.880 at a premium right now for sure. Hey, Chris, you 0:04:00.880 --> 0:04:02.960 know what, I'm really a fan of the kind of 0:04:02.960 --> 0:04:05.000 the you know, the small cap, the regional banks, the 0:04:05.040 --> 0:04:07.520 mid cap banks, and I know for that business model, 0:04:07.840 --> 0:04:10.280 loan growth is a big revenue driver. Talk to us 0:04:10.280 --> 0:04:12.880 about loan growth out there. Are we seeing good signs? 0:04:12.920 --> 0:04:16.480 Where is it? Yeah, that's that's a great question. Um, 0:04:16.520 --> 0:04:18.400 you know what we've seen over the past several quarters. 0:04:18.480 --> 0:04:21.640 Is it building in the economy of loan demand? And 0:04:21.720 --> 0:04:23.520 part of it's coming out of COVID part of its 0:04:23.520 --> 0:04:26.559 inventory is being rebuilt. But what we saw last quarter 0:04:27.120 --> 0:04:28.400 and what we see into the back half of the 0:04:28.480 --> 0:04:31.719 year is we're seeing solid double digit loan growth and 0:04:31.760 --> 0:04:34.039 so you put that together with the benefit of higher 0:04:34.120 --> 0:04:37.440 rate and you get this dynamic, a one two punch 0:04:37.480 --> 0:04:40.640 of accelerating revenue growth. So um, you know, there are 0:04:40.760 --> 0:04:43.000 questions about whether we are late cycle and whether the 0:04:43.000 --> 0:04:46.040 banks should should be growing this quickly, but we've been 0:04:46.040 --> 0:04:49.240 in such an unusual period where loan demand hasn't been 0:04:49.279 --> 0:04:51.520 with us that that we're finally starting to see it, 0:04:51.560 --> 0:04:53.360 and we think we think the banks have learned a 0:04:53.440 --> 0:04:55.960 lesson in terms of underwriting and the quality of the 0:04:56.000 --> 0:05:01.159 loans are putting under bounce she Chris Villanova, how's her? 0:05:01.600 --> 0:05:03.640 I know you played baseball there? How's the hoops team 0:05:03.640 --> 0:05:08.720 going to be the year? It's a transition year? Transition year? 0:05:08.760 --> 0:05:11.480 Wait a minute, that's what you some companies say about 0:05:11.680 --> 0:05:14.680 you know there. You can't do a transition year at Villanova. 0:05:14.800 --> 0:05:18.960 By the way, what was it like playing college baseball? 0:05:19.040 --> 0:05:21.680 I've always been it's kind of mysterious because everybody plays 0:05:21.680 --> 0:05:25.360 either basketball or football, you know, maybe soccer if you're 0:05:25.400 --> 0:05:27.919 kind of a stoner. But what's the baseball crowd like, 0:05:28.040 --> 0:05:31.000 because I've always wondered about that. You know, it's a 0:05:31.080 --> 0:05:34.080 it's a great group of guys, um. But but make 0:05:34.160 --> 0:05:37.200 no mistake about it's a basketball school. Um. It's been 0:05:37.200 --> 0:05:39.320 a basketball school and and we are going to have 0:05:39.320 --> 0:05:41.839 a good year for the basketball team. It's just our expectations. 0:05:41.839 --> 0:05:44.560 We've been spoiled over the past decade with Jay. Yeah, 0:05:44.680 --> 0:05:48.360 Jay right, the great, great coach retired kind of unexpectedly. There. 0:05:48.360 --> 0:05:51.200 I wonder where he's gonna land next. Chris McGrady, thanks 0:05:51.200 --> 0:05:52.960 so much for joining us. He's head of US bank 0:05:53.000 --> 0:05:55.560 Research and that means something, folks, because KBW they are 0:05:55.640 --> 0:06:01.160 focused exclusively on the banking sector, research and investment banking. 0:06:01.480 --> 0:06:04.320 KBW now is a staple company and steples a good 0:06:04.480 --> 0:06:06.960 regional investment bank that maybe some people don't know of, 0:06:07.040 --> 0:06:09.920 but they've been growing. They focus on kind of the 0:06:09.920 --> 0:06:14.160 mid size um companies out there, good investment banking, good research, 0:06:14.240 --> 0:06:17.400 and their acquisition of k b W made them an 0:06:17.440 --> 0:06:21.760 instant player in covering all things financial services. So good 0:06:21.800 --> 0:06:27.800 getting Chris McGrady on there. You know, a couple of 0:06:27.800 --> 0:06:30.960 maxims I learned early on in my careers. Don't fight 0:06:31.080 --> 0:06:35.559 the tape and don't fight the Fed. Well, the FEDS 0:06:35.680 --> 0:06:38.880 raising rates not good, but the tape has been going 0:06:38.960 --> 0:06:41.160 up for the last four or five six weeks. I 0:06:41.200 --> 0:06:43.240 don't know what's going on, but hopefully our next guest does. 0:06:43.279 --> 0:06:47.560 Lizzie Evans, managing partner Evans may Wealth. She got her 0:06:47.640 --> 0:06:50.960 undergraduate degree from Indiana University, so maybe she can tell us, 0:06:51.000 --> 0:06:53.160 Matt what a hoosier is, because I have no idea 0:06:53.240 --> 0:06:56.240 what no one knows what. Lizzie, what are you doing 0:06:56.240 --> 0:06:58.880 with this market here? What are you telling your clients here? 0:07:00.440 --> 0:07:04.600 Good morning, Paul and Matt. Excited to be here. UM this, 0:07:04.839 --> 0:07:07.960 you know, I think that we've seen what's you know, 0:07:08.000 --> 0:07:10.560 what's the out look for the markets? We've seen are 0:07:10.800 --> 0:07:13.880 very welcome reprieve in the markets over the last six 0:07:13.960 --> 0:07:17.880 weeks to really just an absolutely brutal first half of 0:07:17.920 --> 0:07:20.880 the year. But you know, I think that, um, we 0:07:21.440 --> 0:07:24.920 are certainly cautiously optimistic for the for the second half 0:07:24.920 --> 0:07:28.200 of the year, but I expect, well, we'll volatility is 0:07:28.240 --> 0:07:30.080 here to stay. I think we'll have a lot of 0:07:30.160 --> 0:07:35.000 volatility surrounding inflation and economic data points. So from an 0:07:35.040 --> 0:07:37.800 investment standpoint, I think you have to be very selective 0:07:37.960 --> 0:07:41.520 and you have to focus on quality. Know what you own, 0:07:41.680 --> 0:07:44.840 know why you own it? All right? So what is 0:07:44.920 --> 0:07:47.160 quality out there? What do you want to focus on? 0:07:49.080 --> 0:07:50.720 I think you need to, you know, you need to 0:07:50.720 --> 0:07:53.760 be careful about making a broad call about the market 0:07:54.120 --> 0:07:56.960 or a sector style of investment. You know. I think 0:07:57.040 --> 0:08:01.480 if you think about how dollars will be spent if 0:08:01.480 --> 0:08:05.000 the economy continues to soften, what what are what will 0:08:05.240 --> 0:08:08.840 customers cut? What won't they cut? What will CFOs or 0:08:08.920 --> 0:08:12.400 business line managers cut? What won't they cut? So, in essence, 0:08:12.480 --> 0:08:15.320 you want to have companies that are the best, most 0:08:15.720 --> 0:08:20.840 indispensable businesses in their particular sector or industry. All right, Lizzie, 0:08:20.840 --> 0:08:22.640 I mean I think I'm probably like a lot of 0:08:22.680 --> 0:08:25.760 investors where my investment outlook has kind of been shaped 0:08:25.800 --> 0:08:29.080 by the whole time period following the Great Financial Crisis, 0:08:29.120 --> 0:08:32.080 when my portfolio did great because I just saw an 0:08:32.120 --> 0:08:35.760 Apple and Amazon and the Microsoft, the big growth names, 0:08:36.400 --> 0:08:38.840 and then there was this rotation into some of the 0:08:38.920 --> 0:08:43.000 cyclical names, maybe the reopening trades. I don't know, but 0:08:43.040 --> 0:08:46.040 I think I just feel more comfortable in lately owning 0:08:46.040 --> 0:08:50.800 those big cap growth names are those companies you're talking about. 0:08:50.840 --> 0:08:54.680 Do you like my strategy? Well, I think I do. 0:08:54.760 --> 0:08:57.920 I like the you know, particularly how much a lot 0:08:57.960 --> 0:09:00.400 of the big mega cap text doox have been hit 0:09:00.440 --> 0:09:02.360 since the first of the year. You know, you look 0:09:02.400 --> 0:09:08.240 at Microsoft, Microsoft off it's high, Amazon's percent off its high, 0:09:08.360 --> 0:09:11.960 Google's twenty three percent off its high. Disney had a 0:09:12.040 --> 0:09:16.480 great report. Um they're really, you know, finally showing signs 0:09:16.520 --> 0:09:20.800 of some resiliency both across parks and Disney plus or 0:09:20.840 --> 0:09:23.880 streaming percent off its tie. So I think there are 0:09:23.920 --> 0:09:27.400 certainly some companies that offer attractive values. But you know, 0:09:27.440 --> 0:09:30.920 I think you want to be careful about moving in 0:09:31.000 --> 0:09:33.360 or out of Do you have growth names and then 0:09:33.400 --> 0:09:35.920 do you go into a more defensive play. I think 0:09:35.920 --> 0:09:38.680 you need to have a balance because just like timing 0:09:38.679 --> 0:09:42.120 in the market, you can't time when a style of 0:09:42.160 --> 0:09:44.959 investment or a sector will outperform. So the key is 0:09:45.000 --> 0:09:48.040 to know the companies you have and be selective as 0:09:48.040 --> 0:09:51.800 opposed to just making you know, a broad call across 0:09:51.840 --> 0:09:56.000 a style or um a sector. Is the FED driving 0:09:56.040 --> 0:09:58.360 this market? I mean, is it all about the FED 0:09:58.760 --> 0:10:03.439 or um? Is it really the underlying economy? And earnings. 0:10:04.720 --> 0:10:06.680 I think all eyes have been on the FED, you know, 0:10:07.040 --> 0:10:11.200 all year. Certainly the CPI pp I figures we've seen 0:10:11.240 --> 0:10:14.000 this week are encouraging. You know, for the last six weeks, 0:10:14.040 --> 0:10:17.480 if you look at the softening and commodities future pricing, 0:10:17.559 --> 0:10:19.800 we thought we had seen peak inflation. So I think 0:10:19.800 --> 0:10:23.080 that's certainly that combined with a good earning season and 0:10:23.080 --> 0:10:25.800 really the market thinking we're going to have somewhat of 0:10:25.800 --> 0:10:31.280 a catastrophic earnings season has been positive. But um, you know, 0:10:31.320 --> 0:10:34.560 I think there is still uncertainty as it relates to 0:10:34.600 --> 0:10:39.520 the said there's still uncertainty geopolitically. Um, there there's a 0:10:39.520 --> 0:10:42.400 lot of risks out there. So you know, I think 0:10:42.400 --> 0:10:45.120 that right now where someone in a sideways trading pattern, 0:10:45.160 --> 0:10:47.920 and we're likely going to be there until the fall 0:10:47.960 --> 0:10:51.640 when we have some more certainty. So fe're earlier point. 0:10:51.800 --> 0:10:54.160 Know what you own, know why you own it, owned 0:10:54.200 --> 0:10:57.400 companies that are going to continue to do well even 0:10:57.440 --> 0:11:00.560 in periods of time when there is prolonged economic slow down. 0:11:01.080 --> 0:11:03.040 All right, Lizzie, thanks so much for joining us. Really 0:11:03.040 --> 0:11:06.319 appreciate getting your thoughts there. Lizzie Evans, managing partner for 0:11:06.360 --> 0:11:14.360 Evans may Wealth. We think about the last seven days, 0:11:14.559 --> 0:11:18.840 pretty good news on the economic front. We've had good 0:11:18.920 --> 0:11:22.880 jobs number, We've had some better and expected inflation data 0:11:22.920 --> 0:11:25.040 both at the consumer and producer level. Then today we 0:11:25.080 --> 0:11:28.080 get the University of Michigan UH sentiment survey came in 0:11:28.320 --> 0:11:31.000 better than expected in a nice improvement month the month. 0:11:31.080 --> 0:11:33.559 So for a lot of market participants, a lot of 0:11:33.600 --> 0:11:36.679 market watchers, the question now becomes, what is this economic 0:11:36.840 --> 0:11:39.600 data mean to our Federal Reserve? And is our way 0:11:39.640 --> 0:11:42.720 for them to screw it up? Maybe? Vince Signarella, Global 0:11:42.720 --> 0:11:45.160 macro Strategistrom Bloomberg News, Hey, Fence, do you have any 0:11:45.160 --> 0:11:49.760 opinion on this? Uh? Just a little um. Let's get 0:11:49.840 --> 0:11:52.479 let's take a look at the fed's track record and forecasting. 0:11:52.600 --> 0:11:54.800 And Paul, you've been on the street. If if you 0:11:54.920 --> 0:11:57.160 traded like that, would would you have lasted long in 0:11:57.200 --> 0:12:02.240 the trading room? So? Uh, neither would. I think we 0:12:02.280 --> 0:12:04.640 would have probably gotten the hook after about three months 0:12:04.640 --> 0:12:08.280 of losses because that's what the FED forecasts would have resulted. 0:12:09.360 --> 0:12:11.719 I just want to make a point to this, I 0:12:11.760 --> 0:12:13.720 think is a really serious point that no one on 0:12:13.720 --> 0:12:15.720 the street is talking about at all. No one in 0:12:15.720 --> 0:12:19.040 the media is talking about Today on the CNBC Interview, 0:12:19.080 --> 0:12:22.080 Barkin was asked about the balance sheet and he gave 0:12:22.120 --> 0:12:25.000 maybe the most NSS answer for the summer when he said, 0:12:25.520 --> 0:12:29.199 we must believe the balance sheet shrinking has a tightening effect. 0:12:29.480 --> 0:12:32.480 The real question is what is that tightening effect? And 0:12:32.520 --> 0:12:35.200 every time a FED at representative as an asked that question, 0:12:35.280 --> 0:12:38.360 they said, we don't know. So how in the face 0:12:38.440 --> 0:12:42.120 of lower inflation data do you continue to high rates 0:12:42.160 --> 0:12:46.240 blindly without knowing how the Fed's balance sheet shrinking is 0:12:46.280 --> 0:12:49.840 going to tighten rates because they will tighten financial conditions. 0:12:50.720 --> 0:12:52.760 I find that just uncontrocal. They always say it's a 0:12:52.760 --> 0:12:55.840 blunt instrument, right, but it is still shocking to hear 0:12:55.920 --> 0:12:58.880 that the FED knows so little about the effects of 0:12:59.720 --> 0:13:03.560 it's know and that's that's actually not correct. The fact 0:13:03.559 --> 0:13:06.080 that it's a blunt instrument is because they're in the 0:13:06.120 --> 0:13:08.080 in the belly of the curve, not in the short 0:13:08.200 --> 0:13:12.239 end of the curve. We grew up with um repurchase 0:13:12.320 --> 0:13:15.160 agreements and reverse repurchase agreements, which is what the FED 0:13:15.240 --> 0:13:17.880 did New York set did almost on a weekly basis 0:13:18.240 --> 0:13:23.320 to try to control money supply, or realistically, the the 0:13:23.320 --> 0:13:25.679 the base monetary base, the fat doesn't really control the 0:13:25.720 --> 0:13:28.000 money supply, and they would do that almost on a 0:13:28.040 --> 0:13:31.079 weekly basis and set funds. Traders always took that as 0:13:31.080 --> 0:13:33.240 an indication of whether the said was leaning a little 0:13:33.280 --> 0:13:38.120 barish or leading or leaning leading. Dubbish, Um, it's not 0:13:38.160 --> 0:13:40.319 a blunt instrument. Raising the Fed funds rate is to 0:13:40.360 --> 0:13:44.000 blunt instrument. It's shocking to me the policy they're using 0:13:44.000 --> 0:13:47.200 to try to control us. So, Vince, what do you think, 0:13:47.480 --> 0:13:51.240 given the economic data we've seen recently, what do you 0:13:51.320 --> 0:13:55.480 think the Reserve should do? I think they should be 0:13:55.520 --> 0:13:59.319 continuing to reduce the balance sheet. I think a really 0:13:59.360 --> 0:14:02.280 good for them would be to do a reverse operation 0:14:02.360 --> 0:14:05.199 twist and bring their purchases into the short end of 0:14:05.240 --> 0:14:07.680 the curve where they belong, not into the belly of 0:14:07.720 --> 0:14:10.319 the curve. And then they have two choices. If they 0:14:10.360 --> 0:14:14.120 think things are should should be tightened, they can let 0:14:14.200 --> 0:14:17.920 those short end maturities just roll off very comfortably. If 0:14:17.920 --> 0:14:20.760 they think the economy needs help, they can repurchase them 0:14:20.920 --> 0:14:23.120 very easily in the short end of the curve and 0:14:23.160 --> 0:14:24.720 get the heck out in the middle of the market 0:14:24.720 --> 0:14:26.920 where they don't belong. Let the market set rates where 0:14:27.000 --> 0:14:29.520 medium term rates should be so, and why don't they? 0:14:29.720 --> 0:14:32.280 I mean, I have no clue, to be honest, I 0:14:32.320 --> 0:14:36.360 really don't. I don't see how they keep coming things that. 0:14:36.840 --> 0:14:39.720 You know, they keep talking about inflation and we need 0:14:39.760 --> 0:14:42.240 to see multiple prints with the last print was zero, 0:14:42.520 --> 0:14:46.200 no inflation. So keep hiking rates in the face of 0:14:46.320 --> 0:14:50.000 rolling over inflation. You know they have daily saying it's structural. 0:14:50.000 --> 0:14:53.080 How did it become structural in six months? We've had 0:14:53.160 --> 0:14:56.280 zero inflation to fifteen years, six months and six months 0:14:56.280 --> 0:14:59.440 of inflation. Now it's structural. It makes no sense, I 0:14:59.520 --> 0:15:02.160 mean to make all right, This is my suggestion to 0:15:02.160 --> 0:15:05.280 you call Tom Keane, book a seat on the surveillance 0:15:05.320 --> 0:15:07.920 golf stream going out to Jackson Hole and see if 0:15:07.920 --> 0:15:09.400 you can talk some sense into these folks. What do 0:15:09.400 --> 0:15:12.120 you think you know, if they would let me, I would, 0:15:12.120 --> 0:15:14.000 but I think they would probably want to just bury 0:15:14.040 --> 0:15:15.960 me somewhere in the background. They wan't want me getting 0:15:16.560 --> 0:15:19.000 somewhere out in the desert. Is there? And if you 0:15:19.000 --> 0:15:22.600 put your trader hat on, is there a way for 0:15:23.040 --> 0:15:26.920 investors to make money in this market if they, like you, 0:15:27.080 --> 0:15:30.160 think the FED is completely off base? Yeah, I think 0:15:30.160 --> 0:15:32.040 there's a great opportunity. I think there's a couple of 0:15:32.080 --> 0:15:34.640 things we're gonna say. I think we're seeing producer prices 0:15:34.680 --> 0:15:37.000 fall faster than the prices that are being passed along. 0:15:37.360 --> 0:15:41.240 We're seeing a real nice movement this morning that no 0:15:41.280 --> 0:15:44.520 one's talking about, how import prices and export prices are 0:15:44.600 --> 0:15:48.040 dropping considerably. That's profitable for companies on both sides of 0:15:48.080 --> 0:15:51.000 the coin, especially the large caps, because as the market 0:15:51.000 --> 0:15:53.360 continues to gain, the dollar is gonna fall and that's 0:15:53.360 --> 0:15:56.240 going to give them some more leverage because those fellows 0:15:56.280 --> 0:15:58.840 just don't hedge, and whenever the dollars goes up, they 0:15:58.880 --> 0:16:01.640 lose money. So reversal of that trend going into the 0:16:01.640 --> 0:16:04.000 fourth quarter, I think it's going to be positive earnings. 0:16:04.240 --> 0:16:06.120 I think it's gonna be positive for stocks. And the 0:16:06.160 --> 0:16:08.400 folks who are watching this rally and continue to call 0:16:08.440 --> 0:16:10.600 it a bear market rally, I think they're gonna be 0:16:10.680 --> 0:16:14.520 chasing this all the way through December, trying to get 0:16:14.520 --> 0:16:16.840 their their books looking a little bit more like SMP 0:16:17.000 --> 0:16:19.440 returns because they're gonna miss this book. So, so you're 0:16:19.480 --> 0:16:23.640 a bold despite the fact that the FED um continues 0:16:23.720 --> 0:16:26.320 on its hiking path, or you think that the FED 0:16:26.440 --> 0:16:29.280 is gonna at some point um turn tail and run 0:16:29.320 --> 0:16:31.880 back down. I think I think after September they're going 0:16:31.920 --> 0:16:35.240 to realize they've made another policy mistake and just stop. UM. 0:16:35.400 --> 0:16:38.760 There's really no reason to RaSE seventy five basis points September. 0:16:38.840 --> 0:16:41.160 I believe they will, and I believe the best trade 0:16:41.160 --> 0:16:44.120 on the street after September is going to be to 0:16:44.160 --> 0:16:46.920 buy the short end because when the Fed realizes they've 0:16:46.960 --> 0:16:50.280 pushed it too far, UM, the short end of the 0:16:50.320 --> 0:16:52.520 curve is going to rally because they don't need to 0:16:52.520 --> 0:16:56.120 be this aggressively oversold, expecting the Fed to continue to 0:16:56.200 --> 0:16:59.000 raise raise rates. So the two year right now, let's 0:16:59.040 --> 0:17:01.560 call that three to five. Where do you think that 0:17:01.600 --> 0:17:03.560 goes by the end of the year. I think, for 0:17:03.560 --> 0:17:05.879 sure back below three percent. It needs to be closer 0:17:05.920 --> 0:17:09.240 to two point seven five. I think you'll actually see 0:17:09.280 --> 0:17:12.200 something of an inversion between the FED funds rate and 0:17:12.240 --> 0:17:15.560 the two year yield when as the marketers tries to 0:17:16.320 --> 0:17:18.680 tell the Fed and insist to the Fed that it's 0:17:18.680 --> 0:17:21.400 too tight, that you could very well push this economy 0:17:21.400 --> 0:17:24.320 into a recession, and if they do so, they will 0:17:24.400 --> 0:17:26.560 start to reverse and there's no way that the two 0:17:26.640 --> 0:17:29.480 year you'll stay at these levels longer in May. I mean, 0:17:29.480 --> 0:17:31.840 there's there's no real rush to lower, to be going 0:17:31.840 --> 0:17:35.000 out into ten years and buying at at you know, 0:17:35.080 --> 0:17:39.399 two point two point seven, um. But to have a 0:17:39.440 --> 0:17:41.760 two year at three and a quarter inverted with Hen's 0:17:42.600 --> 0:17:44.880 it doesn't make sense to me. But has the FED 0:17:45.000 --> 0:17:50.200 always been um this political? Has there ever been? Um? 0:17:50.240 --> 0:17:53.359 I know there's been, like high level economists at the 0:17:53.400 --> 0:17:57.600 FED obviously, um, even in recent memory. But what about traders? 0:17:57.640 --> 0:18:00.359 I mean, has anybody in there ever said done? No? No, 0:18:02.240 --> 0:18:05.080 With all due respect to the Federal Reserve, they glorified academics, 0:18:05.160 --> 0:18:08.280 I mean their college professors. They start out that way, 0:18:08.320 --> 0:18:10.440 they've become an economist, and then they end up back 0:18:10.440 --> 0:18:15.240 in college teaching or unless you're lucky like Bernanke or Clarada, 0:18:15.440 --> 0:18:18.760 you joined the one percent and go work for Pimco. Well, 0:18:19.040 --> 0:18:23.399 or I mean Powell also wasn't a professor, right, No, No, 0:18:23.560 --> 0:18:26.159 he's probably the only one on the board, but you know, 0:18:26.240 --> 0:18:29.240 I think he's I think they're so petrified they're going 0:18:29.280 --> 0:18:32.800 to be tattooed with the with the burns a FED 0:18:33.240 --> 0:18:36.040 situation of the seventies which really let inflation get out 0:18:36.080 --> 0:18:38.280 of control, and you have to remember the difference females 0:18:38.320 --> 0:18:41.480 two times is significant because Burns was very political. Every 0:18:41.480 --> 0:18:45.399 time something in cp I started to rise, he instructed 0:18:45.440 --> 0:18:49.399 the economists that defended to take it out of the equation. Alright, Vince, 0:18:49.560 --> 0:18:53.520 awesome stuff as always. I mean that is a strong 0:18:53.880 --> 0:18:57.840 bullish call. They're very clear. By the short end. Uh, 0:18:57.880 --> 0:18:59.840 he's saying he's gonna see some good fourth quarter earnings 0:18:59.880 --> 0:19:03.679 as well. We'll see here Vincegnarella, global macro strategist for 0:19:03.840 --> 0:19:10.720 Bloomberg News, with his hot take on these markets. It's 0:19:10.720 --> 0:19:12.919 gonna run next, guess Hugh Johnson. He's chairman of Hugh 0:19:13.119 --> 0:19:15.920 Johnson Economics. Hugh, I was just mentioning you for the 0:19:16.000 --> 0:19:18.600 last seven days, starting with the jobs data and then 0:19:18.680 --> 0:19:22.440 inflation data and today with the mission sentiment. If I'm 0:19:22.440 --> 0:19:26.679 the economy, I'm feeling pretty good here. What's what's your takeaway? Well, 0:19:26.760 --> 0:19:29.679 it's pretty important. And it's important obviously because one of 0:19:29.720 --> 0:19:32.840 the big focuses has been on obviously what the federal 0:19:32.880 --> 0:19:36.000 Reserve is going to do in the future, most importantly 0:19:36.080 --> 0:19:39.679 probably September. The focus is on September, and the question 0:19:39.800 --> 0:19:42.960 is seventy five basis points are fifty basis points, and 0:19:43.040 --> 0:19:45.760 then of course what happens after that, particularly when we 0:19:45.800 --> 0:19:48.440 get to two thousand twenty three, that's really going to 0:19:49.119 --> 0:19:53.000 determine the outcome for the economy. And and candidly that 0:19:53.119 --> 0:19:56.800 the numbers that we're getting not so much. The employment numbers, 0:19:56.840 --> 0:19:59.000 which were very good, are very strong, and I think 0:19:59.040 --> 0:20:01.720 they've got a soften up and they will soften up. 0:20:01.960 --> 0:20:06.280 But obviously the inflation numbers were well below expectations. No 0:20:06.320 --> 0:20:09.280 matter which inflation number you look at, consumer prices and 0:20:09.359 --> 0:20:13.960 producer prices, uh, the export and import prices today softer 0:20:14.080 --> 0:20:16.480 than expected, and the question is will the Federal Reserve 0:20:16.560 --> 0:20:20.120 respond to those softer numbers. Keep in mind those were 0:20:20.160 --> 0:20:23.359 softer numbers for the month in July. We're going to 0:20:23.440 --> 0:20:26.679 see the August numbers in September before that meeting. And 0:20:26.720 --> 0:20:30.000 I might add importantly that taking a look at some 0:20:30.040 --> 0:20:33.080 of the more recent sort of data and commodity prices 0:20:33.080 --> 0:20:37.880 and particularly food prices, agriculture prices, and non agriculture prices, 0:20:37.920 --> 0:20:40.959 you might get some more numbers inflation numbers for the 0:20:41.000 --> 0:20:44.159 month of August in the middle of September, just before 0:20:44.200 --> 0:20:47.840 the September twenty one meeting that are also very good 0:20:47.920 --> 0:20:53.280 or very soft soft consumer price index numbers not only 0:20:53.400 --> 0:20:55.880 the month, but also on a year over year basis 0:20:55.920 --> 0:20:58.320 So the Fed, the Fed is going to have to 0:20:58.440 --> 0:21:01.760 grapple with some really really a tough decision. September is 0:21:01.800 --> 0:21:04.639 going to be a tough decision. Well, we were just 0:21:04.640 --> 0:21:07.800 talking Vince Ignarella. He says he still expects the FED 0:21:07.840 --> 0:21:11.240 to go seventy five. Even if they go fifty, um, 0:21:11.280 --> 0:21:15.960 they're still on a pretty steep rate rise, rate hiking path. 0:21:16.680 --> 0:21:19.440 Can they hold that up if these numbers continue this often, 0:21:19.560 --> 0:21:23.000 especially if the um G d P numbers get softer 0:21:23.080 --> 0:21:27.800 into or will they have to cut Let's not say 0:21:27.920 --> 0:21:32.080 cut yet, let's just say reduce the number of increases. 0:21:32.520 --> 0:21:34.520 The real question is I think, first of all, I 0:21:34.560 --> 0:21:37.280 think seventy five basis points is too much in September, 0:21:37.280 --> 0:21:39.679