WEBVTT - Inflation and Market Outlook Amid a Second Trump Admin 0:00:00.080 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.920 --> 0:00:16.320 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.320 --> 0:00:19.799 at seven am Eastern on applecar Player, Android Auto with 0:00:19.840 --> 0:00:23.280 the Bloomberg Business App. Listen on demand wherever you get 0:00:23.320 --> 0:00:26.079 your podcasts, or watch us live on YouTube. 0:00:26.239 --> 0:00:29.960 We drown updated. Usually we're with Jeffrey Rosenberg of Black Rock. 0:00:30.040 --> 0:00:34.240 When we're breathless, the Feds cut rates, blah blah blah. 0:00:34.320 --> 0:00:38.919 Today we pause and we have a quiet or mer 0:00:39.080 --> 0:00:42.919 serene Jeff Rosenberg he comes in Cardigan, He's like casual, 0:00:43.000 --> 0:00:45.879 you know, it's like not fed day or jobstay or 0:00:46.000 --> 0:00:50.519 CPI day. An intelligent conversation. How hard is it to 0:00:50.600 --> 0:00:54.320 be at Blackrock and be trying to figure out coupon 0:00:54.960 --> 0:00:56.160 or total return? 0:00:56.720 --> 0:00:59.640 Is it a fun business now or is it brutal 0:00:59.640 --> 0:01:01.360 every day day to make the right decision. 0:01:01.880 --> 0:01:03.920 Well, there's just a lot of cross currents. 0:01:04.080 --> 0:01:06.640 And although it seems kind of quiet, it's it's about 0:01:06.680 --> 0:01:10.399 an hour and ten minutes till you know, we start 0:01:10.400 --> 0:01:14.440 the morning in fixed income and then it's ECB day. Actually, 0:01:14.560 --> 0:01:16.560 so there's it never it never stops. 0:01:16.959 --> 0:01:20.040 Is the stuff you learned at Temper at Carnegie Melon 0:01:20.200 --> 0:01:24.199 valid now is the textbooks help you in this fixed 0:01:24.200 --> 0:01:24.959 income market? 0:01:25.560 --> 0:01:27.160 You know, it's a great it's a great question. 0:01:27.240 --> 0:01:30.200 And I talk a lot to new graduates, and you know, 0:01:30.200 --> 0:01:32.960 I look back on you know, I was the third 0:01:33.040 --> 0:01:37.640 program at the Carnegie Mellon Computational Finance program, and you 0:01:37.680 --> 0:01:40.160 know what was important is is that you learned how 0:01:40.160 --> 0:01:43.759 to learn. You learned how to keep your skills relevant 0:01:43.920 --> 0:01:46.679 because like, for example, when I was there, like the 0:01:46.720 --> 0:01:50.880 credit derivatives market hadn't yet even been invented, but the 0:01:51.040 --> 0:01:57.280 underlying kind of intellectual foundations of that was interest rate derivatives. 0:01:57.280 --> 0:01:59.600 And so I had the interest rate derivative background, and 0:01:59.600 --> 0:02:02.600 then when credit derivatives became kind of invented, it was 0:02:02.640 --> 0:02:05.720 all based on the same kind of academic I. 0:02:05.640 --> 0:02:07.360 Want to get this in quickly. Paul wants to jump in. 0:02:07.360 --> 0:02:10.000 We've got Jeff Rosenberger Blackrock with us for this entire 0:02:10.040 --> 0:02:14.360 Two blocks into forty five after the hour, I was 0:02:14.400 --> 0:02:17.079 in the Saint Regions Hotel in Beijing and Jillian Tet 0:02:17.320 --> 0:02:20.320 did an article on something I'd never heard of, cdo 0:02:20.440 --> 0:02:21.320 squaredes a. 0:02:21.320 --> 0:02:22.240 Million years ago? 0:02:22.840 --> 0:02:26.280 Are we back to that now with derivative cuteness? Are 0:02:26.280 --> 0:02:29.120 we doing in six seven reducts. 0:02:30.240 --> 0:02:34.919 So you know, it's it's a it's a it's equip 0:02:35.440 --> 0:02:39.600 somewhat attributed to to Mark Twain. History doesn't repeat, but 0:02:39.680 --> 0:02:43.120 it rhymes, and I think that's the way to think about, 0:02:43.320 --> 0:02:46.920 you know, cycles and financial cycles and innovation, you know, 0:02:46.960 --> 0:02:50.440 particularly around around credit. You know, we've had credit cycles 0:02:50.480 --> 0:02:51.640 from time immemorial. 0:02:52.360 --> 0:02:52.960 This one is. 0:02:52.919 --> 0:02:56.960 Particularly interesting, right because it's in the post GFC environment 0:02:57.320 --> 0:03:00.920 where we've seen something we've never seen before, this massive 0:03:00.960 --> 0:03:05.480 expansion of liquidity from a step function change in the 0:03:05.560 --> 0:03:09.040 role of central banks and the amount of liquidity in 0:03:09.080 --> 0:03:13.560 the market. And liquidity is the essential ingredient in extending 0:03:13.560 --> 0:03:16.679 a credit cycle, right, my favorite, probably greatest quip of 0:03:17.000 --> 0:03:21.400 all time. You know, hats off to the source of 0:03:21.440 --> 0:03:24.240 this one, which is coming to a movie, you know, 0:03:24.280 --> 0:03:29.079 on Christmas Day with Timothy Shallow. A rolling loan gathers 0:03:29.160 --> 0:03:34.960 no loss, and you know what allows you to roll 0:03:35.000 --> 0:03:38.680 over those loans extends a credit cycle, and that's liquidity. 0:03:38.920 --> 0:03:42.000 So this has been a fifteen year long credit cycle. 0:03:42.040 --> 0:03:44.560 And so you do a lot of things when there 0:03:44.600 --> 0:03:47.800 are a lot of liquidity in the markets and you 0:03:47.880 --> 0:03:51.560 extend and you know, things build up and you know, 0:03:51.600 --> 0:03:56.440 we'll see it's not history repeating. We're not doing CDO squares, 0:03:56.480 --> 0:04:01.720 we're not leveraging up subprime mortgages. Right, That's why we 0:04:01.760 --> 0:04:04.320 don't repeat those things because we look at those mistakes 0:04:04.400 --> 0:04:07.880 and we fix the past mistakes. But looking forward, you 0:04:07.920 --> 0:04:10.120 always find new ways to find new sources. 0:04:10.240 --> 0:04:12.800 And Jeffrey thil but the best performance year to date 0:04:12.880 --> 0:04:16.080 in fixed income has been US corporate high yield US 0:04:16.160 --> 0:04:19.800 leverage loans of eight nine percent. I mean, do I 0:04:19.800 --> 0:04:21.680 take that risk going into twenty twenty five? Do I 0:04:21.680 --> 0:04:23.640 take that credit risk going into twenty twenty five? 0:04:23.960 --> 0:04:27.719 So we're at you know, almost through depends on which 0:04:27.839 --> 0:04:31.039 you know, metric you you look back in terms of history, 0:04:31.080 --> 0:04:34.720 but we're at or close to the tight levels of 0:04:35.480 --> 0:04:40.839 spreads observed in those markets. So you can take that risk, 0:04:40.960 --> 0:04:45.000 but you've got to understand what your distribution of outcomes 0:04:45.040 --> 0:04:48.680 looks like. It's a carry trade, it's an income trade. Now, 0:04:48.720 --> 0:04:51.440 why are the spreads so tight because corporate balance sheets, 0:04:51.560 --> 0:04:55.440 corporate profits. You know, despite all the back and forth 0:04:55.480 --> 0:04:58.520 about what is GDP doing and what's inflation doing, corporate 0:04:58.520 --> 0:05:01.680 profits have powered through. So with the inflation story, what 0:05:01.760 --> 0:05:05.240 has happened is pricing power, and so corporate profits really 0:05:05.279 --> 0:05:10.560 are what are driving you know, corporate risk premiums. And 0:05:10.680 --> 0:05:13.200 there's one other thing that's really interesting happening in this 0:05:13.320 --> 0:05:16.240 market about Tom Scurlier. A question in terms of innovation 0:05:16.640 --> 0:05:19.320 is kind of what you're measuring in the public markets 0:05:19.720 --> 0:05:24.840 is changing because we're redistributing the balance of credit risk 0:05:24.960 --> 0:05:29.200 between bank underwrited credit that stays on bank balance sheets, 0:05:29.560 --> 0:05:33.320 public credit markets that we measure in those indices, and 0:05:33.360 --> 0:05:35.560 then the types of credits that are being you know, 0:05:35.640 --> 0:05:38.600 increasingly found underwrited in the. 0:05:38.520 --> 0:05:39.480 Private credit market. 0:05:39.520 --> 0:05:43.000 And that distributional change makes some of those historical comparisons 0:05:43.279 --> 0:05:46.080 a bit different. But the bottom line is spreads are 0:05:46.160 --> 0:05:49.239 very tight. Could they go tighter maybe, But you should 0:05:49.240 --> 0:05:52.320 expect that your carry is going to be the best 0:05:52.400 --> 0:05:55.760 case scenario and that if there's any kind of surprise 0:05:55.839 --> 0:05:58.000 to the downside, you're going to be looking at some 0:05:58.440 --> 0:06:01.040 price erosion from spread widening. 0:06:01.080 --> 0:06:03.240 In the twenty twenty five outlook, what. 0:06:03.160 --> 0:06:05.359 Does your federal Reserve do on December eighteenth? 0:06:05.880 --> 0:06:08.280 Oh wow, I think if we pull up the Bloomberg 0:06:08.320 --> 0:06:13.160 function WRP in Cincinnati, you will it's radio that was 0:06:13.440 --> 0:06:14.880 that was a radio joke hopefully. 0:06:15.600 --> 0:06:18.680 Addition, just like you know, see. 0:06:18.440 --> 0:06:21.160 You, Tom, So, I think it's one hundred percent or 0:06:21.240 --> 0:06:24.279 ninety nine percent expected. So the FED has kind of 0:06:24.480 --> 0:06:27.760 backed itself into the corner and doesn't want to disappoint 0:06:27.880 --> 0:06:31.360 market expectations. But you look at that inflation print yesterday, 0:06:31.560 --> 0:06:33.719 you look at the ease of financial conditions, Tom, You've 0:06:33.880 --> 0:06:37.279 seen me say this on every FMC, every payroll meeting. 0:06:37.360 --> 0:06:39.760 That the disconnect here, and it's been a disconnect for 0:06:39.760 --> 0:06:42.680 a long time, is the disconnect between the Fed's view 0:06:42.880 --> 0:06:46.400 of how tight policy is and how easy policy. 0:06:46.120 --> 0:06:48.440 Is when you measure it by financial conditions and. 0:06:48.520 --> 0:06:52.400 The ambiguity of our economics. Jeffrey Rosenberg with US with 0:06:52.480 --> 0:06:58.039 black Rock this morning. Rates go down, it's ambiguous. Does 0:06:58.080 --> 0:07:01.960 a goose GDP or is it a question of a 0:07:02.040 --> 0:07:03.080 slower demand? 0:07:03.839 --> 0:07:05.880 You go down, you get. 0:07:05.760 --> 0:07:10.280 China deflation or massive disinflation. When you see rate cuts 0:07:10.320 --> 0:07:12.960 like we see, which of it is it an attempt 0:07:12.960 --> 0:07:16.600 to goose GDP or a desperation towards deflation. 0:07:17.760 --> 0:07:20.640 So I think for the impact on the US, the 0:07:21.400 --> 0:07:24.679 FED wants to normalize and they think that they're tight. 0:07:24.760 --> 0:07:26.560 I wrote about this at the beginning of this year, 0:07:26.560 --> 0:07:30.160 and it showed up when the FED finally cut rates 0:07:30.640 --> 0:07:32.680 by fifty bases points in September, and I called it 0:07:32.840 --> 0:07:34.840 the new conundrum. Right, So you guys will remember the 0:07:34.840 --> 0:07:38.360 old green span conundrum. Right, he was raising rates, but 0:07:38.480 --> 0:07:40.520 long term rates weren't going up. They were going down 0:07:40.560 --> 0:07:44.400 because back then China was rebalancing, not rebouncing, reinvesting all 0:07:44.440 --> 0:07:46.720 of his trade surpluses back into treasuries. And we couldn't 0:07:46.760 --> 0:07:48.480 understand why the Fed couldn't. 0:07:48.200 --> 0:07:49.880 Control long term interest rates. 0:07:49.960 --> 0:07:53.400 So I've talked about the possibility that we could see 0:07:53.440 --> 0:07:57.160 the new conundrum. What's the new conundrum is here we're 0:07:57.280 --> 0:07:59.920 cutting interest rates in the short end, but the law 0:08:00.200 --> 0:08:02.640 end isn't responding. That's exactly what happened in August, right, 0:08:02.680 --> 0:08:05.200 we cut interest rates fifty basis points, the long end 0:08:05.240 --> 0:08:07.520 went up. And I think when you look into twenty 0:08:07.560 --> 0:08:10.880 twenty five, right, we've taken down the amount of cuts 0:08:10.880 --> 0:08:11.200 that the. 0:08:11.160 --> 0:08:14.080 Fed is expected, but they're still expected to cut. 0:08:13.960 --> 0:08:16.560 Rates and if they do, and this is what yesterday's 0:08:16.560 --> 0:08:19.520 inflation print is kind of worrisome, is we're kind of 0:08:19.520 --> 0:08:22.880 getting into the consensus around this sticky inflation. Okay, so 0:08:22.920 --> 0:08:25.880 why are they cutting next month not next month, next week? 0:08:26.000 --> 0:08:29.200 Because they want to support the job market and the 0:08:29.280 --> 0:08:32.160 concerned about the tightening, So they're showing their hand that 0:08:32.200 --> 0:08:34.800 there's a little bit of preference for the labor market 0:08:34.920 --> 0:08:37.760 over the inflation view. Okay, well that's a problem for 0:08:37.920 --> 0:08:41.120 the rate cutting cycle because you can cut the front end, 0:08:41.400 --> 0:08:43.400 but the back end may be more worried about that 0:08:43.480 --> 0:08:46.480 sticky inflation and worried about some of those longer term 0:08:46.480 --> 0:08:50.240 issues around debt and deficits in the fiscal policy side. 0:08:50.280 --> 0:08:53.480 So the rate piece could get very interesting next year, 0:08:53.559 --> 0:08:57.520 where the directionality on the Fed doesn't necessarily create the 0:08:57.559 --> 0:09:01.200 directionality for the bond market. And remember, most of the 0:09:01.240 --> 0:09:04.679 bond market returns are going to come from the longer 0:09:04.800 --> 0:09:07.560 end if you're holding say an AG or a typical 0:09:07.640 --> 0:09:10.480 kind of index portfolio. So kind of thinking that your 0:09:10.480 --> 0:09:12.360 returns are going to follow what the Fed is going 0:09:12.440 --> 0:09:14.240 to do in twenty twenty five kind of like what 0:09:14.280 --> 0:09:19.440 we saw in October, you know, maybe a tricky and problematic. 0:09:18.760 --> 0:09:20.080 Way of investing in fixed income. 0:09:20.120 --> 0:09:23.839 Next year coming in January, we got a new administration 0:09:23.920 --> 0:09:25.640 coming in, we have a new Congress that canna be seen. 0:09:25.679 --> 0:09:29.360 Did that change the way you guys think about opportunities, 0:09:29.440 --> 0:09:30.000 risk reward. 0:09:30.400 --> 0:09:32.680 Yeah, I mean, I think we're all kind of going 0:09:32.720 --> 0:09:35.720 through it's that time of year, twenty twenty five outlooks and. 0:09:35.720 --> 0:09:37.560 Oh no, don't tell me you did an outlook. 0:09:38.000 --> 0:09:42.240 No, I spare myself the December out of but. 0:09:42.240 --> 0:09:44.800 Come January we write a here's what we think for 0:09:44.840 --> 0:09:49.199 this week, so you know, you know, and it's basically, 0:09:49.280 --> 0:09:52.120 you know, this tremendous amount of policy uncertainty, and which 0:09:52.160 --> 0:09:57.040 policy uncertainty gets unwound or realized. 0:09:56.600 --> 0:09:59.480 First, right, and so the problem is the stuff that 0:10:00.120 --> 0:10:01.280 can be done quickly. 0:10:01.640 --> 0:10:05.520 Trade immigration is the stuff that has a little bit 0:10:05.559 --> 0:10:09.520 more worrisome uncertainty for the economic impact, and the tax 0:10:09.600 --> 0:10:13.920 pieces and the deregulation takes a little bit longer to 0:10:13.960 --> 0:10:17.280 play out. So you have a timing aspect for how 0:10:17.360 --> 0:10:20.640 this kind of policy uncertainty unwinds in the first part 0:10:20.679 --> 0:10:23.000 of the year, and right now no one really knows 0:10:23.040 --> 0:10:26.000 where that's going to shake out, and it's creating this 0:10:26.080 --> 0:10:29.160 kind of policy overhang of uncertainty. But you know, what 0:10:29.160 --> 0:10:32.200 we've seen obviously in financial markets is kind of the 0:10:32.240 --> 0:10:36.480 post election reduction in the pre election uncertainty that's leading 0:10:36.480 --> 0:10:39.320 to kind of reduction in volatility, kind of what you might. 0:10:39.160 --> 0:10:42.079 Call the everything rally. So what am I doing on credit? 0:10:42.160 --> 0:10:43.599 I mean, you know, I could sit here in a 0:10:43.640 --> 0:10:45.160 two year at four point two percent? 0:10:45.240 --> 0:10:46.559 Do I take credit risk here? 0:10:47.160 --> 0:10:49.240 So you can take some credit risk, And as I 0:10:49.280 --> 0:10:51.840 was saying in the kind of the earlier segment that 0:10:51.920 --> 0:10:55.800 the credit risk, you want to preserve some flexibility. 0:10:56.400 --> 0:10:57.559 You want to preserve some. 0:10:57.640 --> 0:11:01.040 Ability to change your portfolio because you really don't have 0:11:01.120 --> 0:11:03.800 a lot of upside in terms of price appreciation. You 0:11:03.840 --> 0:11:05.720 don't have a lot of downside when it comes to 0:11:05.800 --> 0:11:07.800 kind of the base scenario for. 0:11:07.800 --> 0:11:08.720 Twenty twenty five. 0:11:08.800 --> 0:11:11.640 The economy's doing well, corporate profits are doing well, but 0:11:11.720 --> 0:11:14.040 you have a lot of that reflected in the price right, 0:11:14.080 --> 0:11:17.120 So you just don't have a lot of good asymmetry 0:11:17.120 --> 0:11:19.600 on your side. So you want to kind of start 0:11:19.640 --> 0:11:21.560 the year with a little bit of flexibility. You can 0:11:21.600 --> 0:11:24.400 own credit here, but I wouldn't be max overweight into 0:11:24.400 --> 0:11:25.720 my credit position at the beginning. 0:11:26.280 --> 0:11:28.559 There's a belief out there, i'd say, in the zeitgeist 0:11:28.800 --> 0:11:31.520 that the big companies that are riding and high right 0:11:31.559 --> 0:11:35.200 now won't issue credit until rates come down. I don't 0:11:35.200 --> 0:11:38.280 buy it. That's a consensus view. Is a big surprise. 0:11:38.360 --> 0:11:39.880 Next year they're all going to start issuing. 0:11:40.280 --> 0:11:43.600 So you've got to separate kind of discretionary issuance, which 0:11:43.600 --> 0:11:45.360 is what I think you're talking about, Like where do 0:11:45.440 --> 0:11:49.040 corporations have the ability to show some flexibility to remember, 0:11:49.120 --> 0:11:51.679 like the average maturity of investment grade debt is like 0:11:51.920 --> 0:11:55.440 seven years, right, so you've got twenty fifteen percent of 0:11:55.440 --> 0:11:58.600 that debt coming do every year. So there's just this 0:11:58.760 --> 0:12:02.880 kind of recycling effect where you're getting issuance because it's 0:12:02.920 --> 0:12:04.200 just part of the natural. 0:12:04.280 --> 0:12:06.200 But then we'll get an overlay on top of that. 0:12:06.400 --> 0:12:08.640 Yeah, and then the overlay on top of that. You know, 0:12:09.040 --> 0:12:12.000 you will get some of that because the credit spreads 0:12:12.000 --> 0:12:14.800 are very tight, so there's very good kind of pricing power, 0:12:15.040 --> 0:12:18.240 you know, never mind the rate aspect. The rate aspect 0:12:18.280 --> 0:12:20.200 is a little bit tough for one to time. So 0:12:20.280 --> 0:12:22.960 it's really when you see kind of issuers pull back 0:12:23.000 --> 0:12:27.440 and ad is are they getting really attractive issuance on 0:12:27.480 --> 0:12:29.000 the spread side, and right now they're going to get 0:12:29.080 --> 0:12:29.959 very attractive issues. 0:12:30.720 --> 0:12:34.719 Meg seven sends around all the houses their Christmas gift thing, 0:12:34.840 --> 0:12:35.720 you know, the holiday. 0:12:36.200 --> 0:12:40.720 You should see the fruitcake CROs backrock. It's just the unbelievable. 0:12:40.800 --> 0:12:43.280 The fruitcake first calling me, all right, so what's your 0:12:43.880 --> 0:12:47.400 Where's the best value in the fixing the space today 0:12:47.400 --> 0:12:48.720 as you think about twenty twenty five. 0:12:48.880 --> 0:12:51.200 Yeah, So I think there's value, and there's and there's 0:12:51.280 --> 0:12:54.160 kind of opportunity, and so I think the value is 0:12:54.160 --> 0:12:56.880 in the front end of the curve because that's the 0:12:57.040 --> 0:12:59.800 part where I think if you're gonna see some kind 0:12:59.840 --> 0:13:03.720 of reaction from the fed's policies in twenty twenty five, 0:13:03.800 --> 0:13:05.520 that's where you're going to see it, and you're not 0:13:05.920 --> 0:13:08.520 as exposed to what I was highlighting earlier before, this 0:13:08.679 --> 0:13:11.520 kind of conundrum risk where fedce cutting rates, but back 0:13:11.600 --> 0:13:14.480 end rates are really reflecting more long term inflation or 0:13:14.480 --> 0:13:19.839 debt and deficit issues. Value is tough across fixed income 0:13:19.880 --> 0:13:22.400 because of the tightness of spreads, So it's really about 0:13:22.600 --> 0:13:26.040 relative value and relative kind of risk exposure. Front end 0:13:26.080 --> 0:13:28.480 investment grade there's not a lot of spread, but there's 0:13:28.480 --> 0:13:30.360 not a lot of risk, so it's kind of. 0:13:30.280 --> 0:13:32.760 An okay place to be. There's no real kind of. 0:13:32.720 --> 0:13:34.880 Jump up and down and back up the truck. As 0:13:34.880 --> 0:13:36.880 I said, before. It's more about. 0:13:36.559 --> 0:13:39.559 A little bit starting the year, a little bit more flexibility, 0:13:39.559 --> 0:13:41.840 a little bit more liquidity, a little bit more defensive 0:13:41.920 --> 0:13:44.480 on how tight spreads are, and then use that to 0:13:44.520 --> 0:13:45.640 take opportunities. 0:13:45.679 --> 0:13:48.360 If you know there's some surprises. 0:13:47.679 --> 0:13:50.240 Which is what we're going to get right, you just 0:13:50.280 --> 0:13:51.840 can't predict them by definition. 0:13:52.360 --> 0:13:53.760 That gives you an opportunity to take advantage. 0:13:53.760 --> 0:13:55.720 Then what are systemic strategies? 0:13:55.840 --> 0:13:56.800 It's systematic. 0:13:57.000 --> 0:14:00.679 Systematic is what's the difference? Tell me what do you 0:14:00.679 --> 0:14:01.040 guys do? 0:14:01.280 --> 0:14:04.559 Yeah, so basically the key of what we do is 0:14:05.400 --> 0:14:10.240 to exploit opportunities in the cross section, right and and 0:14:10.240 --> 0:14:12.400 and look at alpha opportunities. 0:14:12.840 --> 0:14:14.240 Uh and and. 0:14:14.080 --> 0:14:16.679 What we do is take out you know, so much 0:14:16.679 --> 0:14:18.760 of what we talk about in the markets is the 0:14:18.840 --> 0:14:21.560 direction right, our rates going up, our rates going down. Look, 0:14:21.600 --> 0:14:24.680 the reality is getting the direction right is pretty hard. 0:14:24.880 --> 0:14:28.160 So if your alpha source, if your outperformance source, is 0:14:28.200 --> 0:14:31.240 betting on direction, it's it's you know, you get maybe 0:14:31.240 --> 0:14:31.960 four times. 0:14:31.720 --> 0:14:33.080 A year to make that correctly. 0:14:33.320 --> 0:14:36.520 If you look inside of financial markets. 0:14:36.200 --> 0:14:39.640 Inside the what we call the cross section, there's a 0:14:39.680 --> 0:14:43.360 lot more opportunities to take advantage of the key driver 0:14:43.480 --> 0:14:45.680 of alpha, which is which is dispersion, and that's kind 0:14:45.720 --> 0:14:49.520 of like the centerpiece of our systematic strategy and over markets. 0:14:49.560 --> 0:14:52.720 Folks, what you just heard from mister Rosenberg is gospel. 0:14:53.160 --> 0:14:56.960 I can't say enough how wrong the financial media is 0:14:57.000 --> 0:15:01.440 on this, focusing on vectors out six months they changed 0:15:01.480 --> 0:15:05.120 like an aircraft carrier turning around in the Mediterranean. And 0:15:05.200 --> 0:15:09.320 the grind is day by day looking for that differential 0:15:09.320 --> 0:15:10.960 in price, which if. 0:15:10.840 --> 0:15:12.840 You're a black rock, you gotta use Greek letters. 0:15:12.880 --> 0:15:14.680 I mean, you know you went to Cardie email three 0:15:14.760 --> 0:15:15.640 hundred billion doing this. 0:15:15.920 --> 0:15:18.560 He named his third kid Epsilon. I mean, what's that about, 0:15:18.760 --> 0:15:19.720 Jeffrey Rosenberg? 0:15:19.960 --> 0:15:23.400 Hey works thy, wonderful to have your studio, particularly this 0:15:23.560 --> 0:15:25.840 was great. It's not like what did the FED do? 0:15:26.320 --> 0:15:29.360 What about paragraph three? I mean, you know, it's it's 0:15:29.400 --> 0:15:31.360 just a it's a different Jeffrey Rosenberg. 0:15:37.520 --> 0:15:41.360 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:15:41.480 --> 0:15:44.760 weekday afternoons from seven to ten am. Easter Listen on 0:15:44.800 --> 0:15:47.800 Apple car Play and Android Auto with a Bloomberg Business 0:15:47.800 --> 0:15:49.920 happ or watch us live on YouTube. 0:15:50.280 --> 0:15:53.320 There are people that said rates are going up and 0:15:53.440 --> 0:15:56.480 inflation's not going back to a John Williams two percent 0:15:57.040 --> 0:16:01.480 too quickly. Jim Bianco out front, Doctor o'larian's done a 0:16:01.480 --> 0:16:05.080 great job. The City Group, Combine Hollenhorst and that crew, 0:16:05.600 --> 0:16:08.040 great job and other people that you know, the small brain. 0:16:08.080 --> 0:16:10.680 I have it without the sake of going. But Lindsay 0:16:10.760 --> 0:16:13.080 pieg is the one the day after day after day 0:16:13.240 --> 0:16:16.440 just said shut up, Inflation's not coming down. She's my 0:16:16.480 --> 0:16:19.200 economist of the year with Stifel. Doctor Piegs that joins 0:16:19.280 --> 0:16:22.240 us this morning. Lindsay, the global rate cut, the race 0:16:22.320 --> 0:16:26.560 to the bottom. Is it about trying to goose output 0:16:27.240 --> 0:16:30.920 or is it a modest panic about is David Rosenberg 0:16:31.000 --> 0:16:35.800 says too much economic capacity, that there's not enough demand 0:16:35.840 --> 0:16:36.240 out there. 0:16:36.560 --> 0:16:37.760 Rates got to come down now. 0:16:37.840 --> 0:16:39.680 Finally, well, I. 0:16:39.600 --> 0:16:43.240 Think we're seeing very diverging economic conditions, which warrants different 0:16:43.280 --> 0:16:48.880 policy for the ECB, the Bank of England versus what 0:16:48.880 --> 0:16:52.200 we're seeing from the FED. We're seeing faltering growth overseas 0:16:52.280 --> 0:16:55.480 at a much more precipitous decline and inflation here in 0:16:55.520 --> 0:16:58.840 the US. Growth is averaging your three percent over the 0:16:58.920 --> 0:17:02.600 past six months, and inflation is not showing further improvement 0:17:02.680 --> 0:17:06.399 but rather momentum to the sideways and in some cases 0:17:06.440 --> 0:17:10.040 an acceleration in some of these key components. So this 0:17:10.160 --> 0:17:14.720 divergence is very much to be expected given that differential 0:17:14.760 --> 0:17:18.080 in economic and underlying conditions that we're seeing abroad versus 0:17:18.080 --> 0:17:19.520 in the domestic economy. 0:17:19.200 --> 0:17:21.240 Up But Harvard Jason Furman does a great job. 0:17:21.240 --> 0:17:25.560 He calls it his ecumenical inflation as he combines. 0:17:25.119 --> 0:17:26.480 All sorts of series. 0:17:26.760 --> 0:17:31.640 What is your ecumenical treatment of yesterday's inflation report? Can 0:17:31.720 --> 0:17:33.439 you see a disinflation vector? 0:17:34.520 --> 0:17:36.760 Well, I think at this point there was not enough 0:17:37.080 --> 0:17:40.399 momentum to the upside to dissuade the FED from that 0:17:40.480 --> 0:17:43.240 December rate cut. I do think the committee is going 0:17:43.280 --> 0:17:46.439 to push through a third round cut next week, given 0:17:46.560 --> 0:17:50.320 that the increase was in line with expectations. Remember, FED 0:17:50.400 --> 0:17:54.120 officials have reset the bar for December, saying, as long 0:17:54.160 --> 0:17:58.040 as the numbers are within our expectations, within our forecast, 0:17:58.520 --> 0:18:03.280 that's not enough to derail our progress towards further relief 0:18:03.400 --> 0:18:06.200 for the economy, as long as the economy is still 0:18:06.240 --> 0:18:09.719 strong and solid but not overheating. So the threshold has 0:18:09.720 --> 0:18:13.199 been adjusted higher for December. But going forward, if we 0:18:13.280 --> 0:18:16.800 continue to see inflation at these elevated levels, this lack 0:18:16.880 --> 0:18:19.320 of progress as we've seen in the core now for 0:18:19.359 --> 0:18:21.879 the past several months. I think the Fed is on 0:18:22.000 --> 0:18:24.160 the verse. They're going to be backed into a corner 0:18:24.480 --> 0:18:27.840 to take that policy pause sooner than later in the 0:18:27.880 --> 0:18:29.840 new calendar year of twenty twenty five. 0:18:30.680 --> 0:18:33.760 Lindsay, we're going to have a new administration coming in 0:18:33.800 --> 0:18:35.800 next month, on new Congress to be seated. Are you 0:18:35.840 --> 0:18:38.960 concerned about some of the We haven't heard much about 0:18:39.000 --> 0:18:41.200 the economic policies of the new administration, but I guess 0:18:41.280 --> 0:18:42.479 tariffs are certainly part of it. 0:18:42.560 --> 0:18:43.679 Tax cuts are part of it. 0:18:44.760 --> 0:18:49.200 Does that raise materially your inflation concerns in this economy, Well. 0:18:49.040 --> 0:18:53.480 It certainly raises the risk scenario. We don't necessarily know 0:18:53.720 --> 0:18:57.440 how these policies are going to impact the economy, how 0:18:57.480 --> 0:19:00.960 these policies are going to impact from an inflation standpoint, 0:19:01.200 --> 0:19:03.320 because we can't look at them in and of themselves. 0:19:03.560 --> 0:19:08.240 Large sizeable tax cuts could be inflationary, but we've heard 0:19:08.240 --> 0:19:11.160 from the incoming Trump administration they're likely to be offset 0:19:11.200 --> 0:19:15.439 with large sizeable reductions in government spending elsewhere, And so 0:19:15.480 --> 0:19:18.959 it depends on how this net plays out from an 0:19:18.960 --> 0:19:23.320 inflation standpoint. Just like tariffs in and of themselves not inflationary, 0:19:23.600 --> 0:19:26.360 but if we see the economy engage in a tit 0:19:26.400 --> 0:19:32.000 for tat retaliatory cycle of consistent increases in tariffs, that 0:19:32.280 --> 0:19:35.600 then could lead to inflationary pressures. So there's still a 0:19:35.600 --> 0:19:38.240 lot of question marks, but I think it does raise 0:19:38.280 --> 0:19:41.440 the upside risk, which in part is why the Committee 0:19:41.480 --> 0:19:43.879 wants to force through as much policy relief as they 0:19:43.920 --> 0:19:48.520 can now before they face that potential downside limitation due 0:19:48.560 --> 0:19:50.040 to fiscal policy restraints. 0:19:50.640 --> 0:19:53.800 Lindsay r economy's seventy percent services here, how's the consumer 0:19:53.960 --> 0:19:55.560 doing from your perspective. 0:19:56.000 --> 0:19:59.960 Well, the consumer is proving surprisingly resilient. We continue to 0:20:00.000 --> 0:20:03.240 to see consumers out in the marketplace spending on goods 0:20:03.280 --> 0:20:04.440 and services. 0:20:03.960 --> 0:20:07.280 Which is wait, wait, wait a minute, Lindsey, you nailed this. 0:20:07.920 --> 0:20:11.040 Go back six months. How did you guess that the 0:20:11.080 --> 0:20:14.920 consumer would be resilient? What was the pixie dust where 0:20:14.960 --> 0:20:16.919 you said the gloom cruse wrong? 0:20:17.920 --> 0:20:20.760 Well, I think the majority of the analysis was looking 0:20:20.800 --> 0:20:23.800 at the primary support for the consumer during the pandemic 0:20:23.840 --> 0:20:28.040 and the immediate aftermath stemming from fiscal stimulus. We pumped 0:20:28.080 --> 0:20:32.000 trillions upon trillions upon trillions of dollars into the marketplace, 0:20:32.400 --> 0:20:37.199 and with that stimulus largely concluding the notion was the 0:20:37.200 --> 0:20:40.000 consumer has to fall off a cliff. We haven't seen 0:20:40.040 --> 0:20:42.320 it yet, but the consumer has to be marching towards 0:20:42.320 --> 0:20:45.600 that endpoint. And I thought not so fast, because there's 0:20:45.600 --> 0:20:49.119