WEBVTT - Lending, Jay Powell, Oil, And EVs (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. Find 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 --> 0:00:22.080 at Bloomberg dot com slash podcast. I want to get 0:00:22.120 --> 0:00:24.360 to our next guest, Tim Line. He's the CEO of 0:00:24.520 --> 0:00:27.040 on Terrius Capital. On Terris the folks that are a 0:00:27.120 --> 0:00:31.160 lender to middle market pe owned company. So it's always 0:00:31.160 --> 0:00:32.800 a good chat with Tim to get a sense of 0:00:32.840 --> 0:00:34.319 what's going on with some of these small and mid 0:00:34.360 --> 0:00:38.559 cap companies out there as they deal with higher inflation, uh, 0:00:38.640 --> 0:00:42.680 the backside of a pandemic, potential recession. Uh. Tim gives 0:00:42.720 --> 0:00:44.839 us some good thoughts there. Tim, thanks so much for 0:00:44.960 --> 0:00:47.400 joining us here. And I'd love just to get kind 0:00:47.440 --> 0:00:49.800 of word of time of flux here. We've got rising inflation, 0:00:49.840 --> 0:00:53.280 we've got rising interest rates, we've got potential for a recession. 0:00:53.720 --> 0:00:56.040 As you talk to some of these smaller and mid 0:00:56.120 --> 0:01:01.160 sized companies, what are they generally seeing, how are they adapting? Sure? 0:01:01.920 --> 0:01:04.759 Good morning, pauling creedy and pleasure to be here. So 0:01:04.959 --> 0:01:08.920 we have almost five hundred middle market portfolio companies, and 0:01:09.040 --> 0:01:13.240 what I'm hearing from them is that demand drivers remain favorable, 0:01:14.520 --> 0:01:18.240 Revenue growth is still quite strong, and while there's certainly 0:01:18.360 --> 0:01:23.039 some inflation concern, our borrowers have managed cost inflation with 0:01:23.080 --> 0:01:27.959 price increases. The most significant challenge for these portfolio companies 0:01:28.040 --> 0:01:31.800 is navigating this tight, tight labor market. So it's kind 0:01:31.800 --> 0:01:34.360 of how do I retain my best people? Where do 0:01:34.480 --> 0:01:38.520 I find new talent? And this hiring issues impacting almost 0:01:38.560 --> 0:01:43.319 all industries and it's across all personnel levels. You made 0:01:43.360 --> 0:01:46.679 a key point. They're offsetting costs with price increases, and 0:01:46.760 --> 0:01:48.960 to your point, it has worked quite well, not just 0:01:49.000 --> 0:01:51.520 for middle market companies as you're focusing on, but I 0:01:51.560 --> 0:01:55.480 would like to say broader sp companies as well. But 0:01:55.520 --> 0:01:57.920 I'm curious how long that can actually last. At what 0:01:58.000 --> 0:02:01.080 point do price increases become so dicky that it ends 0:02:01.120 --> 0:02:05.840 up leading to demand destruction. Sure, it's a very good question, 0:02:06.000 --> 0:02:09.160 and I would say it's not sustainable. I mean, we've 0:02:09.240 --> 0:02:13.680 we've seen companies in our portfolio implement a ten percent 0:02:13.720 --> 0:02:17.440 price increase followed by a twelve percent price increase, and 0:02:17.480 --> 0:02:21.200 at some point there's going to be the customers are 0:02:21.240 --> 0:02:23.960 going to resist and just say I'm not willing to 0:02:24.000 --> 0:02:27.160 do that. But what's so interesting right now is the 0:02:27.320 --> 0:02:31.160 customers need the product, so because of all the supply 0:02:31.240 --> 0:02:34.600 chain disruption, they're willing to pay the extra price to 0:02:34.680 --> 0:02:36.680 get the product to then be able to meet the 0:02:36.720 --> 0:02:41.440 demand from their customers. So what I love to just 0:02:41.480 --> 0:02:45.160 get your sense of a small mid market, MidCap kind 0:02:45.160 --> 0:02:48.040 of M and A activity the last few years. Much 0:02:48.080 --> 0:02:52.000 to my surprise, we're generally very strong despite the pandemic 0:02:52.000 --> 0:02:55.320 and challenges there. Um, what's the M and A activity 0:02:55.400 --> 0:03:00.000 this year? Sure, so we did experience a frenzy of activity, 0:03:00.960 --> 0:03:04.920 one with record deal volume. LBO volume is certainly down 0:03:04.960 --> 0:03:08.720 this year. But notwithstanding this, what we've seen it's very 0:03:08.760 --> 0:03:13.680 strong add on acquisition activity in so our private equity 0:03:13.720 --> 0:03:17.399 sponsors are always looking for opportunities to grow their portfolio 0:03:17.480 --> 0:03:21.960 companies through new services or new product lines. And we 0:03:22.000 --> 0:03:25.720 really expect this strong add on acquisition activity to continue 0:03:26.600 --> 0:03:29.280 for the remainder of this year and and maybe into 0:03:29.880 --> 0:03:36.160 as well. But how is that financed? Exactly? How are 0:03:36.160 --> 0:03:41.520 they financed? Is we? So we and other lenders provide 0:03:41.520 --> 0:03:47.000 that financing. So sponsor buys a company, Uh, the deal 0:03:47.160 --> 0:03:50.280 is capitalized with equity and debt, and when they have 0:03:50.560 --> 0:03:55.360 add on acquisitions, assuming the capital structure is right sized, 0:03:55.840 --> 0:03:59.960 will be able to provide a financing for those acquisition 0:04:00.000 --> 0:04:02.920 Sans if it's a really large acquisition, the sponsor may 0:04:02.960 --> 0:04:06.520 need to step up with additional equity as well. So 0:04:06.920 --> 0:04:11.080 talk to us about the private debt marketplace. It's been 0:04:11.120 --> 0:04:13.720 a area of good growth. That's where you guys play. 0:04:14.160 --> 0:04:16.800 Talk to us about that market in terms of, uh, 0:04:16.839 --> 0:04:19.839 you know, the capital that's available, the rates that you'll lend, 0:04:19.960 --> 0:04:22.359 the liquidity in that marketplace. Gives a sense of overall 0:04:22.400 --> 0:04:26.960 health of that private debt market. Sure, Uh, there's good 0:04:27.000 --> 0:04:30.720 reason for private debt rapid growth. So the industry has 0:04:30.760 --> 0:04:35.720 demonstrated resiliency through numerous second economic cycles over the last 0:04:35.720 --> 0:04:38.960 twenty years. If you think about it, for the investor, 0:04:39.080 --> 0:04:43.240 private debt really offers more favorable risk adjusted returns than 0:04:43.320 --> 0:04:48.360 many other asset classes. Importantly, right now, with the increasing 0:04:48.440 --> 0:04:51.880 interest grates, it offers an inflation hedge because our loans 0:04:51.880 --> 0:04:54.320 are floating rate instruments. So you ask, like, what would 0:04:54.360 --> 0:04:57.240 be a rate we've moved from library to sofa, so 0:04:57.839 --> 0:05:02.240 might be sofur plus five fifty so for plus six 0:05:02.320 --> 0:05:05.640 fifty um. And we don't really see the current economic 0:05:05.720 --> 0:05:10.560 environment changing. Private debts appealed for investors. As a matter 0:05:10.560 --> 0:05:14.240 of fact, private debt assets under management are projected to 0:05:14.279 --> 0:05:17.599 grow at double digit rates over the next five years. 0:05:18.760 --> 0:05:22.040 Over the next five years double digit rates, well um, 0:05:22.080 --> 0:05:26.479 double digit rates per year. Yes, And so where where 0:05:26.480 --> 0:05:28.320 where does that capital come from? Is that coming from 0:05:28.400 --> 0:05:33.599 pension funds, endowments, that types of thing exactly so? Uh, 0:05:33.640 --> 0:05:36.400 And it's from all around the world, right, So it's 0:05:36.800 --> 0:05:40.520 a lot of pensions, sovereign wealth funds and others looking 0:05:40.600 --> 0:05:43.479 for they need yield. So they need yield to be 0:05:43.520 --> 0:05:47.160 able to pay to their pensioneers on a current basis. 0:05:47.640 --> 0:05:51.880 And private debt offers that. Uh. It's an attractive product 0:05:52.160 --> 0:05:56.719 because you're investing in an instrument that provides a current 0:05:56.800 --> 0:06:00.440 yield and an attractive yield. So it's investors all around 0:06:00.440 --> 0:06:05.360 the world, pension sovereign wealth funds, and dowments, etcetera. All right, Tim, 0:06:05.360 --> 0:06:07.880 great stuff, Always a fascinating discussion. Tim Line, CEO of 0:06:07.880 --> 0:06:10.160 in Terris Capital, get a good sense when we talked 0:06:10.160 --> 0:06:12.839 to Tim about the state of small you know, midsize, 0:06:13.040 --> 0:06:14.880 M and A out there, not just the big blockbuster 0:06:14.960 --> 0:06:17.400 deals that are on the Bloomberg terminal every day. We 0:06:17.480 --> 0:06:20.000 also get a good sense of the private debt market, 0:06:20.040 --> 0:06:24.200 which again is a a growing source of capital for UM. 0:06:24.240 --> 0:06:26.480 You know, companies that are looking for growth capital, private 0:06:26.520 --> 0:06:28.920 equity firms that are looking for growth capital. You don't 0:06:28.960 --> 0:06:36.080 just need to go to your local bank. The S 0:06:36.120 --> 0:06:38.800 and P five hundreds still down almost fourteen percent on 0:06:38.839 --> 0:06:40.680 a year to day basis. And then I looked at 0:06:40.720 --> 0:06:43.240 the foot see one, d are good friends over in 0:06:43.279 --> 0:06:45.960 the UK It's up one point three pc. I did 0:06:45.960 --> 0:06:47.800 not know that, so I said, we need to check 0:06:47.800 --> 0:06:50.240 in with Tim craig. Hetty's a director of research, senior 0:06:50.279 --> 0:06:56.000 European strategist for Bloomberg Intelligence and the Pride of Southwest Virginia. Tim, 0:06:56.040 --> 0:06:58.440 thanks for joining us. What do you guys get right 0:06:58.480 --> 0:07:00.799 over there that we're not doing. We're here's a pretty 0:07:00.839 --> 0:07:05.279 good relative performance for the foot see Paul, thanks for 0:07:05.320 --> 0:07:07.080 having me on. Look, I think there are a couple 0:07:07.160 --> 0:07:11.480 of things to consider. UM. One is the makeup of 0:07:11.600 --> 0:07:14.440 the foot see. Remember it doesn't have any tech which 0:07:14.440 --> 0:07:17.480 has gotten tumbled in the US, you know, notwithstanding the 0:07:17.480 --> 0:07:21.760 bounce that we've had back over the last six weeks. Um, 0:07:21.800 --> 0:07:26.120 it's got a big chunk of it is is consumer 0:07:26.560 --> 0:07:30.400 global brands that are also benefiting from a week pound 0:07:30.480 --> 0:07:34.960 because they get to translate back strong dollars into the UK. 0:07:35.680 --> 0:07:38.880 And it's got a big chunk of energy with high 0:07:39.000 --> 0:07:42.400 energy prices, and a big chunk of financials with rising 0:07:42.440 --> 0:07:46.840 interest rates, and all this coalesces to a foot. See 0:07:46.880 --> 0:07:51.360 that's doing really well by trading water. Now. The caveat 0:07:51.440 --> 0:07:54.720 in the off set is it all depends on your 0:07:54.720 --> 0:07:59.120 currency reference point. If you look at uh, the S 0:07:59.160 --> 0:08:04.840 and P five hundred in pounds where I'm sitting, Um, 0:08:04.920 --> 0:08:09.920 it's down a half a percentum. So you've got to 0:08:10.000 --> 0:08:12.840 keep that one in mind. Two, give us a sense 0:08:12.880 --> 0:08:14.560 to him just kind of I'd love to just get 0:08:14.600 --> 0:08:16.560 your thoughts of kind of what you're seeing and hearing 0:08:16.600 --> 0:08:19.720 from companies over in Europe. How tough is it and 0:08:19.800 --> 0:08:23.200 from an economic perspective, and boy, how tough could it 0:08:23.240 --> 0:08:24.800 be when if you guys really are going to have 0:08:24.840 --> 0:08:29.040 this really challenging winter from an energy perspective, Yeah, well, 0:08:29.160 --> 0:08:31.920 fingers calls for a mild winter, that's for sure. And 0:08:33.400 --> 0:08:36.880 you know it's it's interesting because you know, inflation being 0:08:37.360 --> 0:08:41.200 the bug bear that it is for all markets right now, 0:08:42.000 --> 0:08:47.520 it's different in different places in Europe. Um, the key 0:08:47.559 --> 0:08:51.679 issue is is energy um in terms of driving inflation, 0:08:51.840 --> 0:08:54.880 and it's also a key risk factor from the standpoint 0:08:54.880 --> 0:08:58.439 of economic growth. Um. You know our calculations are for 0:08:58.520 --> 0:09:03.720 rush it does cut off the gas and industry is 0:09:03.760 --> 0:09:07.160 what's going to be affected from the standpoint of potential 0:09:07.200 --> 0:09:11.640 shutdowns in terms of energy consumption. You've got to keep 0:09:11.640 --> 0:09:16.240 people's houses warm. Um. You could see for example, the 0:09:16.320 --> 0:09:20.920 docks the main your the main German index with with 0:09:21.040 --> 0:09:25.600 consensus expectations cut by something on the order of from 0:09:25.640 --> 0:09:28.080 where we are right now for two thousand twenty three, 0:09:28.200 --> 0:09:32.240 so the profit impact could be quite significant relative to 0:09:32.280 --> 0:09:36.479 what baked in at this point. In Germany is definitely 0:09:36.520 --> 0:09:38.880 the poster child from the standpoint of where the most 0:09:38.920 --> 0:09:41.880 impact is. And to your point, Tim, as we look 0:09:41.880 --> 0:09:44.360 at what the docks is doing in particular, the negative 0:09:44.360 --> 0:09:47.000 correlation between the docks and natural gas prices is just 0:09:47.160 --> 0:09:49.800 building is getting stronger and stronger. It really shows you 0:09:49.840 --> 0:09:51.640 that even on an inter day basis, you do start 0:09:51.679 --> 0:09:54.280 to see that reaction to the energy prices you're speaking about. 0:09:54.320 --> 0:09:58.040 I'm curious though about what changes it is the idea 0:09:58.080 --> 0:10:02.160 of a recession kind of this in ability that investors 0:10:02.160 --> 0:10:04.680 have to kind of get past to really be foolish 0:10:04.720 --> 0:10:09.520 on Europe again. Um. Yeah, I think that's probably accurate, 0:10:09.559 --> 0:10:14.160 and frankly in ways I think it's true globally. Um, 0:10:14.200 --> 0:10:20.680 you know, evaluations are mawed down into the low teens. 0:10:20.760 --> 0:10:23.840 You're looking at the eurostocks fifty, which is kind of 0:10:23.840 --> 0:10:26.960 our equivalent of the dal Jones index, right, and it's 0:10:27.000 --> 0:10:30.760 now at eleven times forward earnings. You know, the SMP 0:10:30.960 --> 0:10:36.000 sitting it eighteen and change. So evaluation is such where 0:10:36.040 --> 0:10:39.000 a lot is already baked in from the standpoint of 0:10:39.040 --> 0:10:43.640 the expectations of risk. Um. I think the biggest issue 0:10:43.720 --> 0:10:47.960 is when do we see peak inflation and you know, 0:10:48.040 --> 0:10:53.680 the peak in monetary policy tightening and the bad news 0:10:53.800 --> 0:10:56.120 is going to continue in terms of economic growth for 0:10:56.160 --> 0:10:59.120 a while. But when we when we sense that we're 0:10:59.160 --> 0:11:03.000 at that inflection that we don't see it yet, Um, 0:11:03.040 --> 0:11:05.160 that's when you can start to think ahead from the 0:11:05.160 --> 0:11:08.360 standpoint of when valuation will be more important. Right now, 0:11:08.400 --> 0:11:10.520 we think earnings for the rest of the year are 0:11:11.280 --> 0:11:14.320 going to be the big thing, and we see earnings 0:11:14.400 --> 0:11:18.720 risk right now. So as sloppy market outlook. Tim Marcus 0:11:18.720 --> 0:11:21.360 Ashworth from Bloomberg Opinion based in London, we have him 0:11:21.360 --> 0:11:24.640 on pretty often. He is not afraid to show his 0:11:24.760 --> 0:11:28.679 disdain for the e c B UM and its approach. Here, 0:11:28.720 --> 0:11:31.160 what's the market feel like in terms of or what's 0:11:31.160 --> 0:11:33.240 the market discounting in terms of the ECB and its 0:11:33.280 --> 0:11:38.040 ability to flight to fight inflation going forward? Yeah, it's 0:11:38.040 --> 0:11:42.320 it's it's a good question, Paul. And you know Marcus 0:11:42.120 --> 0:11:47.160 has some degree views central banks regardless of where they 0:11:47.160 --> 0:11:49.720 are there between a rock and hart rock and a 0:11:49.760 --> 0:11:54.600 hard place. They can't ease the energy crisis by um 0:11:55.320 --> 0:11:59.120 by supplying more oil um. The only thing they can 0:11:59.160 --> 0:12:04.160 do is accelerate or decelerate economic growth. And so it's 0:12:04.160 --> 0:12:09.040 the best an indirect um sworks tool. And you know, 0:12:09.280 --> 0:12:11.959 maybe they are late to the game. We can talk 0:12:12.000 --> 0:12:14.720 about that all day long. But if they want to 0:12:14.760 --> 0:12:17.000 have an impact on what's going on with inflation, they're 0:12:17.080 --> 0:12:20.360 only option is to slow economic growth by raising interest rates. 0:12:20.360 --> 0:12:22.760 And lord knows whether they're late to it or not. 0:12:22.960 --> 0:12:25.800 That's where they're headed now, and they seem the beginning 0:12:25.800 --> 0:12:28.120 all that bus um, and certainly the b o E 0:12:28.280 --> 0:12:31.200 is and it's here in England, and obviously the FED 0:12:31.280 --> 0:12:33.400 is more here and more on this. As you guys 0:12:33.400 --> 0:12:36.000 said at Jackson Home, Tim, give us a sense. So 0:12:36.000 --> 0:12:37.719 you've been in London now a long time. I mean 0:12:37.720 --> 0:12:40.160 you're born and raised in southwestern Virginia. But you in 0:12:40.200 --> 0:12:42.800 your career on Wall Street and at Bloomberg, you've been 0:12:42.840 --> 0:12:45.960 all over the world. You run business businesses for Bloomberg 0:12:46.000 --> 0:12:49.360 in Hong Kong and New York and now London. What's 0:12:49.360 --> 0:12:51.559 it like in in England these days? In the UK? 0:12:51.640 --> 0:12:55.400 How are consumers feeling? Um? You know? And I guess 0:12:55.400 --> 0:12:59.200 there's this I'm sure there's this tremendous concern about energy security, 0:12:59.240 --> 0:13:01.480 come come this win. But how's the consumer over there 0:13:01.520 --> 0:13:05.920 in the UK and Europe? Um? You know, it's an 0:13:05.920 --> 0:13:11.920 interesting sort of juxtaposition. Um. If I go to the 0:13:11.960 --> 0:13:16.000 local restaurants, there's plenty of people there. There's still crowds 0:13:16.000 --> 0:13:18.959 in the pubs, you know, Lord knows. On the nice 0:13:19.000 --> 0:13:22.360 sunny afternoon, especially a Wednesday or Thursday, Thursday now being 0:13:22.400 --> 0:13:27.520 the new Friday, you know, the pubs are packed outside 0:13:27.559 --> 0:13:30.040 as you know we do here. Um. And if you 0:13:30.040 --> 0:13:35.160 go to the Regent Street, Um, there's plenty of activity. Um. 0:13:35.200 --> 0:13:39.800 That said, UM, you know, that's only one element. And 0:13:40.080 --> 0:13:44.080 clearly there's an awful lot of press reports about especially 0:13:44.200 --> 0:13:48.319 those on lower income. They are really struggling. And so 0:13:48.480 --> 0:13:51.520 I think that there's a real dichotomy right now. But 0:13:51.679 --> 0:13:55.480 boots on the ground, actually things feel pretty normal. Retail 0:13:55.520 --> 0:13:58.200 sales look pretty good. Yep, yep, good stuff, all right. 0:13:58.240 --> 0:14:02.680 Tim craig Head always appreciate the euro perspective from Tim. Uh. 0:14:02.679 --> 0:14:05.240 Tim's based in London for Bloomberg Intelligence. He's a director 0:14:05.240 --> 0:14:07.680 of Research, senior strategist over there. He's been on the 0:14:07.679 --> 0:14:11.719 Wall Street for well over thirty years. Goldman Sachs, Bloomberg 0:14:12.400 --> 0:14:14.679 Wealth of Experience. We appreciate getting some of his time 0:14:14.679 --> 0:14:21.120 from London later this week. Uh, some economic nerds are 0:14:21.160 --> 0:14:24.280 gonna get together Jackson Hall, Wyoming. I've been there. It's beautiful, 0:14:24.360 --> 0:14:26.040 you can do fly fishing, you can see all these 0:14:26.280 --> 0:14:29.080 crazy animals that you'd never see. Bison elk I mean, 0:14:29.160 --> 0:14:32.400 I mean bison are huge. Um. Any who they're gonna 0:14:32.400 --> 0:14:33.880 get together, I'm not really sure what they're gonna do. 0:14:33.920 --> 0:14:35.360 But our next guest can help us figure that out. 0:14:35.440 --> 0:14:39.000 Janelle Marte, economics and Federal Reserve reporter for Bloomberg News. 0:14:39.000 --> 0:14:42.640 All right, Joannelle, we're sending out Michael McKee, Bloomberg's Economic School. 0:14:42.640 --> 0:14:46.080 We're gonna send out the surveillance team, Uh, Tom, John 0:14:46.200 --> 0:14:49.440 and Lisa out to Jackson Hole. Can you tell us 0:14:49.440 --> 0:14:52.960 and tell me and our listeners what is this Jackson 0:14:52.960 --> 0:14:54.960 Hole get together? Who goes and what do they do 0:14:55.000 --> 0:14:58.560 and what's the purpose? So, as you said, it's a 0:14:58.600 --> 0:15:02.640 big deal, especially for economic nerds. Um. They go out 0:15:02.680 --> 0:15:07.840 to enjoy nature, but also to talk about what's happening 0:15:07.840 --> 0:15:11.920 in the economy, and not just here but globally. And 0:15:11.960 --> 0:15:15.000 it's often a chance or a good place for fat 0:15:15.040 --> 0:15:20.840 officials or fat presidents too. You know, they'll they usually 0:15:20.920 --> 0:15:23.440 use it like as a chance to unveil some big 0:15:23.520 --> 0:15:27.880 policy change. Um. But this year, I think what people 0:15:27.920 --> 0:15:31.720 are looking for is any guidance from the Fed as 0:15:31.800 --> 0:15:35.480 to when they might slow rate increases or if they're 0:15:35.480 --> 0:15:38.720 planning to do so on any your term, you know, Janelle, 0:15:38.720 --> 0:15:40.840 I think it's so funny that Paul Sweeney creeps calling 0:15:40.880 --> 0:15:46.640 them nerds and clearly in school. But I mean they're 0:15:46.640 --> 0:15:48.640 the smart folks. That's put it that way. They are 0:15:48.680 --> 0:15:51.480 the smart folks, Janelle, I'm curious about how much of 0:15:51.480 --> 0:15:54.680 this could be anticlimatic. To some extent, it almost seems like, 0:15:54.680 --> 0:15:56.280 at least this week for the markets, a lot of 0:15:56.280 --> 0:15:58.200 this is going to be in wait and see mode 0:15:58.240 --> 0:16:01.080 to see if indeed Chairman Powell and by ascension, the 0:16:01.080 --> 0:16:04.320 Federal Reserve is as hawkish as the market is expecting 0:16:04.560 --> 0:16:09.240 what happens if this becomes a huge nothing burger. I mean, 0:16:09.920 --> 0:16:13.200 listen anytime that power speaks, especially when he speaks at 0:16:13.280 --> 0:16:17.720 Jackson Hall, everyone is, everyone listens, right. Last year he 0:16:18.120 --> 0:16:21.280 made a big speech trying to defend the idea that 0:16:21.400 --> 0:16:25.040 inflation was going to be transitory. Of course, he's since 0:16:25.520 --> 0:16:29.240 canceled that word and said, um, inflation is here, we 0:16:29.320 --> 0:16:32.120 need to get it, get it under control. So when 0:16:32.160 --> 0:16:35.400 he speaks on on Friday morning, everyone everyone's going to 0:16:35.480 --> 0:16:37.880 be listening to just to hear what he has to say, 0:16:38.080 --> 0:16:41.520 you know, especially given what he said last year. Um, 0:16:41.640 --> 0:16:44.000 and yeah, maybe we won't get a big signal. I mean, 0:16:44.040 --> 0:16:46.080 he's not very likely to give us a hand as 0:16:46.120 --> 0:16:49.560 to what they're going to do exactly in September, for example, 0:16:49.680 --> 0:16:53.000 because he's already said they're moving away from that specific 0:16:53.080 --> 0:16:55.480 for guidance. They're not going to tell us they're going 0:16:55.520 --> 0:16:58.840 to do it meeting by meeting. Um, However, you know 0:16:58.920 --> 0:17:01.840 if he if he's end the message that you know 0:17:02.240 --> 0:17:05.000 apparently you know from the from the July meeting, the 0:17:05.240 --> 0:17:09.920 takeaway that a lot of investors um grabbed was that 0:17:09.960 --> 0:17:12.560 the Fed what might soon slow down the pace of 0:17:12.680 --> 0:17:16.840 rat increases, and officials have really pushed back against that. So, UM, 0:17:16.880 --> 0:17:19.680 we'll see if he sends like a really clear message now, 0:17:19.720 --> 0:17:22.760 and you're right, he might not, but certainly that is 0:17:22.800 --> 0:17:27.240 what people are looking for. You know, based on your reporting, 0:17:28.400 --> 0:17:32.040 what's the consensus here about recession? Are we in one? 0:17:32.480 --> 0:17:35.400 Are we going to get into one? If so this year, 0:17:35.600 --> 0:17:37.480 next year? How deep? What are you? What are you 0:17:37.480 --> 0:17:40.359 hearing and seeing? So I would say that there is 0:17:40.440 --> 0:17:44.159 no consensus. We're in a really unique and challenging time 0:17:44.960 --> 0:17:48.480 in that, you know, some economic data is pointing to 0:17:48.560 --> 0:17:51.840 a slow down, as we've seen the GDP numbers, but 0:17:51.920 --> 0:17:55.880 then we have some really strong indicators like what happened 0:17:55.880 --> 0:17:58.920 with jobs, for example, where we saw twice as many 0:17:59.000 --> 0:18:02.960 jobs I did last month as anticipated. So you know, 0:18:03.000 --> 0:18:05.439 I think FED officials are looking at this trying to 0:18:05.520 --> 0:18:07.960 figure it out. There are some people saying that we 0:18:08.040 --> 0:18:12.239 might actually see GDP revised upward later and that that 0:18:12.320 --> 0:18:15.640 might help to close the gap. But really people are 0:18:15.720 --> 0:18:18.360 just waiting to see and figure it and figure it out. 0:18:18.440 --> 0:18:20.600 And I think that as we learn more that that's 0:18:20.640 --> 0:18:24.400 what's going to inform policymakers as to what the what 0:18:24.440 --> 0:18:28.760 the eventually end up doing with rates, Because you know, 0:18:29.240 --> 0:18:33.120 economic data is not perfect. It is often revised. Some 0:18:33.160 --> 0:18:35.560 people have some officials have already blamed that as to 0:18:35.640 --> 0:18:39.720 why they were a little bit slow to respond into 0:18:41.000 --> 0:18:45.160 or twenty one rather as inflation continued to soar and 0:18:45.280 --> 0:18:48.919 so um. I think we'll just have to continue to 0:18:48.920 --> 0:18:51.120 look at the data and see how all the pieces 0:18:51.160 --> 0:18:53.639 fall into place, do you know, on the market scale. 0:18:53.640 --> 0:18:55.880 And one of the big conversations and markets has been 0:18:55.880 --> 0:18:59.400 that the FED is constantly behind the curve and has 0:18:59.440 --> 0:19:02.600 been for years. I'm curious though, if they have actually 0:19:02.720 --> 0:19:05.560 caught up around the cusp of doing so, given that 0:19:05.600 --> 0:19:08.880 we've now had to seventy five bases point hikes and 0:19:09.240 --> 0:19:13.240 fifty and before that as well, So how much further 0:19:13.320 --> 0:19:16.080 do they have to go before they can say, well, 0:19:16.119 --> 0:19:19.560 the Fed is now on top of things. Really good 0:19:19.600 --> 0:19:23.120 point there. The Fed was behind the curve earlier. They've 0:19:23.119 --> 0:19:26.119 said so themselves. But at this point, I mean, they've 0:19:26.520 --> 0:19:30.879 really aggressively raised interest rates and they're at a point 0:19:30.960 --> 0:19:34.840 now where the rates might be considered neutral, which is 0:19:34.840 --> 0:19:37.120 an area that people are not really sure where that is. 0:19:37.200 --> 0:19:41.120 But the point being that they've said they're not going 0:19:41.160 --> 0:19:44.719 to move into restrictive so continuing to increase rates to 0:19:44.760 --> 0:19:48.960 the point where that is intentionally meant to slow economic 0:19:49.000 --> 0:19:53.840 growth and cool demand and bring prices, bring price gains down, 0:19:53.920 --> 0:19:57.480 bring inflation down. So they've said where they're going, you 0:19:57.520 --> 0:20:00.280 know where that endpoint is. It's hard to you know, 0:20:00.480 --> 0:20:04.800 they don't know themselves. They're trying to engauge clues or 0:20:04.840 --> 0:20:07.720 get clues from what happens with inflation and what happens 0:20:08.320 --> 0:20:12.040 with the economy. But we the level of tightening that 0:20:12.080 --> 0:20:15.359 we've seen in the past few months is really the 0:20:15.880 --> 0:20:19.560 highest that we've seen in decades from the FAD. So 0:20:20.240 --> 0:20:23.920 um they're they're they're taking strong action. Uh they are, 0:20:23.960 --> 0:20:26.840 and will certainly pay attention to the news coming out 0:20:26.840 --> 0:20:29.399 of Jackson Hole later this week. Friday is kind of 0:20:29.440 --> 0:20:32.200 the big day. Uh. And again the surveillance team will 0:20:32.240 --> 0:20:35.400 have full coverage from Jackson Hole. Why. I'm sure they're 0:20:35.400 --> 0:20:38.120 gonna have a really cool set up out there, uh, 0:20:38.160 --> 0:20:40.399 in the middle of nowhere, but it is beautiful out there. 0:20:40.480 --> 0:20:43.440 Janelle Marte, Economics and Federal Reserve reporter from Blueberg News 0:20:43.520 --> 0:20:50.639 joints us with some calls there. On the economy. You know, 0:20:50.680 --> 0:20:53.960 we've had oil really pulling back, you know, over the 0:20:54.080 --> 0:20:56.520 last several months. We hit one twenty on w T 0:20:56.600 --> 0:20:59.040 I crued several months back, and then we got down 0:20:59.040 --> 0:21:01.200 here below ninety. A little bit of a spike here today, 0:21:01.240 --> 0:21:03.360 a three percent. I want just to get a sense 0:21:03.359 --> 0:21:05.760 of kind of where the short term trends are. I'm 0:21:05.760 --> 0:21:08.880 really digging this. Blow four dollars or barrel or four 0:21:08.920 --> 0:21:11.600 dollars a gallant gasoline. Um, We'll get a sense where 0:21:11.600 --> 0:21:13.600 the short term trends are and the longer term trends. 0:21:13.680 --> 0:21:15.600 To do that, we check the with the Fernando Valley, 0:21:15.760 --> 0:21:19.640 senior analyst for Bloomberg Intelligence. Fernando, I guess the news 0:21:19.680 --> 0:21:22.439 today is maybe OPEC will be cutting production what do 0:21:22.480 --> 0:21:24.080 you what do you make of the news seeing today 0:21:25.600 --> 0:21:29.159 and Paul, I think it's a very interesting indication of 0:21:29.280 --> 0:21:32.520 where they see the band over the next couple of months. 0:21:32.560 --> 0:21:35.879 And uh, you know, our concern has always been that 0:21:36.680 --> 0:21:39.720 the FED tightening would lead to pain in the emerging markets, 0:21:39.720 --> 0:21:42.200 and I think that's something that we're starting to see 0:21:42.320 --> 0:21:45.000 a lot of emerging markets struggling with a strong dollar, 0:21:45.440 --> 0:21:51.000 with rising food and energy inflation and and low and behold. Uh, 0:21:51.040 --> 0:21:55.040 they're seeing some over supply, especially with China being slower 0:21:55.359 --> 0:21:59.040 to buy some buy crude. And we talked about previously 0:21:59.080 --> 0:22:02.080 about how China I was having issues with lockdowns and 0:22:02.119 --> 0:22:04.879 how that could impact their purchasing and we're starting to 0:22:04.920 --> 0:22:08.479 see that. And you know, the physical market can be 0:22:08.600 --> 0:22:11.359 very different from the financial market, and they're starting to 0:22:11.400 --> 0:22:15.000 see some lag on the Asian side, even though on 0:22:15.040 --> 0:22:19.520 the on the U S side still zee, excuse me, 0:22:19.680 --> 0:22:24.480 a very tight market, Fernando. One of the arguments that 0:22:24.520 --> 0:22:26.399 I believe is how the energy MR had made was 0:22:26.440 --> 0:22:29.240 that liquidity is an issue that there's so many people 0:22:29.280 --> 0:22:32.919 who had hopped into the commodities market. I mean, we 0:22:32.960 --> 0:22:35.800 talked about all the time oil as this big macro 0:22:35.960 --> 0:22:40.800 heade from investors who usually don't actually trade oil or 0:22:40.840 --> 0:22:44.159 trade commodities. I'm curious how much of that is skewing 0:22:44.200 --> 0:22:48.360 the numbers and skewing the price action. Absolutely, and that's 0:22:48.400 --> 0:22:53.000 why we saw in biatigoing negative. It's a lot of 0:22:53.040 --> 0:22:56.639 financial UH speculators and the true definition of the word 0:22:57.040 --> 0:22:59.720 that they don't actually want to take the physical barrels, 0:23:00.040 --> 0:23:03.000 and they can skew that market. UH. The way that 0:23:03.080 --> 0:23:05.520 we tend to look at it is the difference between 0:23:05.800 --> 0:23:09.960 the crude grades themselves and Brent, Brent being the global benchmark, 0:23:10.400 --> 0:23:14.040 and when we see those differentials getting very narrow, it 0:23:14.119 --> 0:23:18.280 typically means that they are competing and there's less of 0:23:18.320 --> 0:23:23.320 a UH. There's a lot less competition between the crude 0:23:23.359 --> 0:23:25.879 sellers and not so much between the crude buyers and 0:23:25.920 --> 0:23:28.840 the opposing is true. So while in the beginning of 0:23:28.880 --> 0:23:32.960 the summer you're seeing the differentials widely significantly, now there's 0:23:33.400 --> 0:23:37.480 they're starting to narrow, especially in Asia, again a sign 0:23:37.520 --> 0:23:43.359