WEBVTT - Inflation, COVID Boosters, And Walgreens (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 --> 0:00:15.520 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 --> 0:00:22.200 at Bloomberg dot com slash podcast. It is a macro 0:00:22.360 --> 0:00:24.279 day today. We're talking about inflation on the back of 0:00:24.320 --> 0:00:27.680 that CPI print. Uh this morning, certainly movie markets went 0:00:27.720 --> 0:00:30.120 a round table, uh this discussion here in this segment, 0:00:30.200 --> 0:00:34.040 Vince Cignarella, Bloomberg News macro strategist, and Jennifer Lee, Senior 0:00:34.040 --> 0:00:37.640 economist and Managing director at BMO Capital Markets. Jennifer love 0:00:37.720 --> 0:00:40.559 to start with you here. What's your takeaway from this 0:00:40.600 --> 0:00:44.280 inflation print we saw this morning? Good morning? So you 0:00:44.320 --> 0:00:46.320 know what what really worries about right now is that 0:00:46.440 --> 0:00:48.879 here we are midway through October and we're all like 0:00:48.920 --> 0:00:52.440 sort of reallying from this September CPI number, and I 0:00:52.479 --> 0:00:54.120 think there's gonna be more to come. And I actually 0:00:54.120 --> 0:00:55.960 told someone and I'm gonna humbly tell you guys this. 0:00:56.320 --> 0:00:58.400 You know, I've told some one last week. Oh you know, 0:00:58.480 --> 0:01:00.560 September CPI is gonna be important, but I think it'd 0:01:00.560 --> 0:01:02.800 be less important because October is going to be the 0:01:02.840 --> 0:01:04.760 one to watch. And I was referring to that because 0:01:05.360 --> 0:01:08.680 of these OPEC plus production cuts, you know, um um, 0:01:08.720 --> 0:01:10.720 and it's going to be upward pressure for energy. But 0:01:10.800 --> 0:01:13.160 you know, I wasn't expecting you know, such broad really 0:01:13.160 --> 0:01:15.959 really broad based gains that we saw in this report. 0:01:16.040 --> 0:01:18.360 So this is troubling obviously, and using you know, the 0:01:18.440 --> 0:01:21.240 reaction of the markets and uh, you know, and so 0:01:21.360 --> 0:01:23.160 of course the question is gonna be what happens to 0:01:23.200 --> 0:01:25.760 the FED, and uh, you know, is their credibility gonna 0:01:25.760 --> 0:01:27.480 be at stake? You know, they might be saying we 0:01:27.760 --> 0:01:32.240 might even have to raise rates longer. And I think 0:01:32.319 --> 0:01:35.400 we cannot completely discount the possibility of a bigger hike 0:01:35.480 --> 0:01:37.640 and Nove, Yeah, what about more, Vince, what about a 0:01:37.680 --> 0:01:41.000 hundred basis points in November? I think that would show 0:01:41.000 --> 0:01:42.920 a little bit of a sign of panic. First, when 0:01:42.959 --> 0:01:45.920 we say I love Jennifer's work, I do read our material, uh, 0:01:45.959 --> 0:01:48.559 and it's very good and very informative. Then if you don't, 0:01:48.600 --> 0:01:52.520 you should um my weary here, and you know you've 0:01:52.520 --> 0:01:54.480 heard me say this is a million times, is that 0:01:54.560 --> 0:01:58.880 this is a systemic supply chain problem and the FED 0:01:59.000 --> 0:02:01.240 is basically trying to fix a leaky pipe with a hammer. 0:02:01.600 --> 0:02:06.120 I don't see how monetary policy is going to crush 0:02:06.160 --> 0:02:08.200 and demand, if you will. What we need to do 0:02:08.360 --> 0:02:11.320 is increased supply and I know that takes time. But 0:02:11.560 --> 0:02:14.559 if the set is too impatient and raises too aggressively 0:02:15.000 --> 0:02:17.160 and doesn't give it an opportunity to work its way 0:02:17.160 --> 0:02:19.799 through the system, I believe without question there is a 0:02:19.840 --> 0:02:22.560 sheer danger that he's going to do exactly what he's 0:02:22.600 --> 0:02:25.079 trying to avoid, which has drive us into a stay 0:02:25.080 --> 0:02:27.720 aflation scenario because wages are not going to keep pace 0:02:28.520 --> 0:02:32.560 and Kohla was announced today the Bureau of Labor Statistics 0:02:32.600 --> 0:02:36.400 announced social security increase next year at eight point seven. 0:02:37.280 --> 0:02:39.519 That's not going to happen to the average worker going 0:02:39.560 --> 0:02:41.760 into next year, so you're going to see a decline 0:02:41.919 --> 0:02:48.120 in in UM spending power and glad I just I 0:02:48.400 --> 0:02:50.799 get the supply chain problems. Yesterday we had a great 0:02:50.800 --> 0:02:53.240 story in the terminal about Jim Bullard trying to buy 0:02:53.240 --> 0:02:56.600 a bicycle and it took in so long. Did you 0:02:56.639 --> 0:02:58.640 see that, Steve Matthews are a great piece. First they 0:02:58.680 --> 0:03:01.080 told him like it's gonna be a and then he 0:03:01.160 --> 0:03:02.959 was I guess he complained and said, listen, I'm on 0:03:03.000 --> 0:03:05.520 the fed, damn it. And so then they gave it 0:03:05.560 --> 0:03:07.280 to him in four months, but they delivered it to 0:03:07.360 --> 0:03:08.880 him with a with a bill for an extra two 0:03:09.160 --> 0:03:11.160 bucks because they said, dude, prices have gone up since 0:03:11.200 --> 0:03:15.560 you ordered this. Um. So the supply chain problems are clear, 0:03:15.639 --> 0:03:19.600 but it looks like the issues in this print were 0:03:19.639 --> 0:03:23.760 shelter so rent, food which I don't think that's a 0:03:23.800 --> 0:03:28.200 supply chain issue, and medical care, which definitely isn't. So Jennifer, 0:03:28.200 --> 0:03:31.280 where do you how do you see this coming down? 0:03:32.880 --> 0:03:34.960 Why where do I begin? I mean food, I mean 0:03:35.120 --> 0:03:37.480 you got to eat, right, But there's also mother nature 0:03:37.480 --> 0:03:40.160 playing a role in that as well. Um, you know, 0:03:40.160 --> 0:03:43.600 and of course the war and that that's dragging on 0:03:43.640 --> 0:03:46.200 and on and on, and that's also causing upper pressure 0:03:46.280 --> 0:03:49.720 on food. You can't forget the I mean, Ukraine is 0:03:49.760 --> 0:03:53.440 the bread basket of the East, so right, yeah, um. 0:03:53.520 --> 0:03:55.400 And then of course shelter, you know, it's it's like 0:03:55.480 --> 0:03:57.800 a big chunk of c p I and and there's 0:03:57.840 --> 0:03:59.360 also a leg on that, so this is what's going 0:03:59.400 --> 0:04:01.320 to happen when you of you know that that the 0:04:01.360 --> 0:04:04.360 big housing um boom last year, so this is almost 0:04:04.360 --> 0:04:08.880 a leg legging effect UM and UM would also says 0:04:08.880 --> 0:04:10.600 still a que way of supply team issues. I should 0:04:10.600 --> 0:04:13.480 also mention, you know, there's like news overnight that and 0:04:13.520 --> 0:04:15.760 I kind of wentf great when I saw this headline 0:04:15.800 --> 0:04:20.080 that Shanghai is back to introducing more restrictions again. Apparently 0:04:20.120 --> 0:04:22.640 a bunch of bars and restaurants are closed again, and 0:04:22.680 --> 0:04:24.400 I was like, oh great, here we go again. So 0:04:24.839 --> 0:04:27.479 there's there's still you know, some of that working through 0:04:27.520 --> 0:04:30.359 the system UM UM. So I don't think we can 0:04:30.400 --> 0:04:32.640 completely discount all the supply pressures. At least we're getting 0:04:32.640 --> 0:04:34.359 some of the auto's back on back into the lots, 0:04:34.400 --> 0:04:37.160 but you know, like there there's still all those computer 0:04:37.240 --> 0:04:40.279 chips that are still short. I think Conda recently was 0:04:40.320 --> 0:04:42.520 saying that they are cutting production. This is in Japan, 0:04:42.560 --> 0:04:44.240 but still like it was a big picture, you know, 0:04:44.279 --> 0:04:47.320 because there's still should word a lot of UM materials, 0:04:47.320 --> 0:04:49.760 so they had to cut their production plans for the 0:04:49.800 --> 0:04:52.840 month of October as well. So it's almost like everything 0:04:52.920 --> 0:04:56.920 is piling on UM when it should have been easing 0:04:57.000 --> 0:05:00.240 at this point. So this is what is quite worrying, right. 0:05:00.520 --> 0:05:02.400 And do you think that the markets are pricing in 0:05:02.720 --> 0:05:06.640 a flat out recession in the in the near term. 0:05:07.760 --> 0:05:09.800 I don't know if they fully priced it in, but 0:05:10.120 --> 0:05:13.720 just about everybody I talked to is absolutely convinced it's 0:05:13.760 --> 0:05:16.599 going to happen. Um. No, no later than the first 0:05:16.640 --> 0:05:21.640 quarter of honestly, not sure how it's not going to happen. 0:05:21.680 --> 0:05:24.560 I mean, we're I'm really curious to see what the 0:05:24.600 --> 0:05:27.560 retail sales number is going to be tomorrow. I'm that's 0:05:27.560 --> 0:05:31.479 going to be enormously interesting. I think we've I think 0:05:31.600 --> 0:05:33.159 what the FED has done. And if you look at 0:05:33.200 --> 0:05:36.239 mortgage rates today nearly seven percent, the highest in twenty years, 0:05:36.640 --> 0:05:39.680 you can't say it's not squash demand with with with 0:05:39.839 --> 0:05:43.240 what you've already done. And we're not even taking accounts 0:05:43.279 --> 0:05:45.840 to what the balance shrinking of the balance shoes doing, 0:05:46.400 --> 0:05:49.320 um and and so you know, we saw what happened 0:05:49.320 --> 0:05:51.720 in the UK with systemic risk and the change of 0:05:51.800 --> 0:05:55.279 financial conditions, not really seeing it here just yet, but 0:05:55.839 --> 0:05:58.200 you know, really interesting to see how markets grabbed a 0:05:58.240 --> 0:06:01.480 hold of that yesterday and rallied when sort of. The 0:06:01.480 --> 0:06:04.800 the UK backed off a little bit, um will be 0:06:04.880 --> 0:06:08.240 said Blake. The financial conditions in the United States to 0:06:08.320 --> 0:06:11.000 that extent anybody's guests, You really don't know. They keep 0:06:11.040 --> 0:06:14.800 saying banks are highly much more capitalized. But no one 0:06:14.839 --> 0:06:17.320 saw two pound in the eight the either. So yeah, 0:06:17.360 --> 0:06:21.080 exactly except for Gary Shilling, who yesterday was on our 0:06:21.120 --> 0:06:24.200 air and said, listen that no one has Stimmy's anymore. 0:06:24.480 --> 0:06:28.400 Housing prices are going down, stocks have gotten crushed. Um, 0:06:28.480 --> 0:06:30.840 you gotta worry about this consumer. Gotta worry about the consumer. 0:06:30.839 --> 0:06:33.440 We'll see to mark some retail sales. Jennifer Lee, senior 0:06:33.480 --> 0:06:37.040 economists and managing director at BEMO Capital Markets, and Vince Ignarella, 0:06:37.279 --> 0:06:40.559 he covers all things markets strategy here for Bloomberg News, 0:06:40.920 --> 0:06:43.719 both jointing us giving us their thoughts on these markets 0:06:43.720 --> 0:06:47.200 which are filling the impact of higher inflation. Print this 0:06:47.240 --> 0:06:53.800 morning still got read on the screen here snp off 0:06:53.880 --> 0:06:55.480 eight tens and one percent. But we're rallying off the 0:06:55.480 --> 0:06:58.239 bottom a little bit, so we'll see how this thing trades. Uh. 0:06:58.279 --> 0:07:00.760 This afternoon, we're handled off the Harold Master and Tim 0:07:00.839 --> 0:07:04.280 Stamix see if they can do something with these markets. 0:07:04.320 --> 0:07:07.520 Never good, I don't know, and you'll send the reins. Mona, 0:07:08.040 --> 0:07:11.360 do my protenential last name Madgen Mona Mahdgen Joints is 0:07:11.520 --> 0:07:13.960 in studio, so I get the ASCAR. Actually, uh in 0:07:13.960 --> 0:07:15.920 a bluebrig in our active broker studio. She's a senior 0:07:15.920 --> 0:07:19.800 investment strategist for Edward Jones. Mona, what do you make 0:07:19.840 --> 0:07:22.520 of this print today? Did it confirm kind of what 0:07:22.560 --> 0:07:24.760 you guys were thinking at Edward Jones? Did it was 0:07:24.880 --> 0:07:26.920 kind of an aha moment, like, oh boy, we got 0:07:27.000 --> 0:07:29.160 more to go here. How did you guys think about it? Yeah? 0:07:29.160 --> 0:07:33.040 You know, generally, coming in we were expecting probably a 0:07:33.040 --> 0:07:35.200 softer print on the headline, but we were expecting that 0:07:35.240 --> 0:07:38.480 core to remain elevated. And look, this core number is 0:07:38.520 --> 0:07:41.760 sticky and it's broader basin probably any of us had 0:07:41.800 --> 0:07:44.040 thought it would be. But the good news, or perhaps 0:07:44.040 --> 0:07:45.880 the silver lining, is that when you look at the 0:07:45.960 --> 0:07:50.040 underlying fundamentals in inflation UM, they've actually been all moving 0:07:50.080 --> 0:07:52.120 in the right direction. You know, not only things like 0:07:52.160 --> 0:07:56.560 break even rates UM inflation expectations I S M prices 0:07:56.640 --> 0:08:00.400 paid even to some extent commodities which have been volatile UM. 0:08:00.400 --> 0:08:03.440 The tougher part has been the shelter and rent components 0:08:03.480 --> 0:08:05.640 of course c p I, and as we know, they 0:08:05.680 --> 0:08:07.680 move with the lag and in fact, when you look 0:08:07.720 --> 0:08:12.320 at underlying mortgage rates, housing prices, housing demand, even rental prices, 0:08:12.680 --> 0:08:15.640 we're starting to see them moderate shift lower. But it 0:08:15.680 --> 0:08:17.480 will take six or twelve months to show up in 0:08:17.520 --> 0:08:19.960 c p I. So we all know that, and hopefully 0:08:19.960 --> 0:08:22.520 the FED will acknowledge that at some point. Well the Fed, 0:08:22.680 --> 0:08:25.000 I mean, it's pretty much a lock. They're going seventy 0:08:25.440 --> 0:08:28.520 in November. It's just I think two weeks away, right, Uh, 0:08:28.960 --> 0:08:33.000 three weeks in any case, Um, the question is what 0:08:33.040 --> 0:08:35.120 they do after that? Right? Are they going to frontload 0:08:35.160 --> 0:08:38.200 everything this year and then sit on it next year? Yeah? 0:08:38.280 --> 0:08:40.520 You know, we're hopeful that they continue to go at 0:08:40.520 --> 0:08:42.959 a gradual pace, maybe for longer. You know, we don't 0:08:43.000 --> 0:08:45.360 want anything to happen like what we saw in the 0:08:45.480 --> 0:08:47.959 UK markets. We don't want dysfunctioning, we don't want credit 0:08:47.960 --> 0:08:51.839 markets um liquidity issues to arise, and we really want 0:08:51.880 --> 0:08:55.760 to see a more even, keel less panic approach to 0:08:55.800 --> 0:08:59.319 what the FED is doing. So perhaps seventy this November 0:08:59.320 --> 0:09:01.680 meeting is locked in. Markets are now pricing in another 0:09:01.720 --> 0:09:04.720 seventy five in December. Maybe they start to moderate after 0:09:04.840 --> 0:09:08.240 that fifty or twenty five in February, But generally speaking, 0:09:08.280 --> 0:09:10.559 I think markets were priced for four and a half 0:09:10.600 --> 0:09:12.719 to four and three quarters were now looking at a 0:09:12.720 --> 0:09:14.920 five percent terminal rate. I was talking to Steve Blitz 0:09:15.800 --> 0:09:19.240 earlier this morning, and he was saying, you know, we 0:09:19.320 --> 0:09:22.520 just have this demographics problem because everybody who left the 0:09:22.559 --> 0:09:26.560 workforce who was already sort of retirement age or close 0:09:27.080 --> 0:09:30.720 during the pandemic is gone. They're not coming back. And 0:09:30.760 --> 0:09:36.679 then gen Z is apparently a smaller group than the millennials. 0:09:36.760 --> 0:09:40.120 So the labor markets just gonna remain tight unless I mean, 0:09:40.160 --> 0:09:42.880 it's unlikely that the Biden administration starts to issue a 0:09:42.880 --> 0:09:46.280 ton of visa working visas they think there are almost 0:09:46.320 --> 0:09:48.319 two million people waiting for them who are going to 0:09:48.400 --> 0:09:51.880 have real trouble getting them in any short amount of time. Um, 0:09:51.920 --> 0:09:54.920 So they just have to get unemployment higher. Yeah, you know, 0:09:55.160 --> 0:09:57.079 it's an interesting point you bring up. We saw labor 0:09:57.080 --> 0:10:00.160 force participation ticked downward in the last labor report. That 0:10:00.200 --> 0:10:03.280 wasn't a great signal. Um, But over time, as people 0:10:03.360 --> 0:10:06.319 savings start to draw down, as maybe the wage gains 0:10:06.320 --> 0:10:09.319 moderator at least don't keep up with inflation. Uh, people 0:10:09.320 --> 0:10:11.440 are going to have to start coming back to the 0:10:11.440 --> 0:10:14.400 workforce in some to some extent. You bring up a 0:10:14.400 --> 0:10:17.160 good longer term issue though longer term labor force is 0:10:17.200 --> 0:10:19.280 declining here in the US unless we do something with 0:10:19.320 --> 0:10:22.199 immigration to your point, and that does weigh on longer 0:10:22.320 --> 0:10:24.920 term potential growth for the US, but not a near 0:10:25.000 --> 0:10:27.800 term problem. Near term, I think we will see softness 0:10:27.880 --> 0:10:30.560 in the unemployment rate over the next twelve to twenty 0:10:30.559 --> 0:10:33.120 four months. Again, there's a lag impact there, so the 0:10:33.160 --> 0:10:35.840 federals start now, we won't see it until about six 0:10:35.880 --> 0:10:39.040 or twelve months from now, but probably coming and probably 0:10:39.280 --> 0:10:41.400 what we need to see in order to get supply 0:10:41.440 --> 0:10:43.800 and demand back and check. All right, So I monna. 0:10:44.040 --> 0:10:48.320 Given that background, given that interest rate background, the economic outlook, 0:10:48.679 --> 0:10:51.360 what do you tell the good folks at Edward Jones. 0:10:51.640 --> 0:10:53.800 You know, they've got their clients out there all over 0:10:53.800 --> 0:10:56.679 the country. Edward Jones has offices. What do you tell 0:10:56.720 --> 0:10:59.440 them about what to do in this market? Because they've 0:10:59.440 --> 0:11:02.680 got crushed with their equities this year fixed income also, 0:11:03.120 --> 0:11:06.400 you know, worst year ever is what the purpose tell me? Man? 0:11:06.440 --> 0:11:09.280 What do you tell them, Yeah, it's been an unprecedented 0:11:09.400 --> 0:11:11.720 first nine to ten months in this market. It's been 0:11:11.720 --> 0:11:15.600 a challenge for diversified investors, for US investors that are 0:11:15.600 --> 0:11:18.679 more equity focused, more fixed income focused, across the board. Now, 0:11:18.720 --> 0:11:22.080 what we will say is we're probably getting closer to 0:11:22.160 --> 0:11:24.400 the end rather than you know, at the start of 0:11:24.440 --> 0:11:26.600 this Fed rate hiking cycle, at the start of this 0:11:26.679 --> 0:11:31.040 inflation elevation cycle. And so the good news is if 0:11:31.040 --> 0:11:33.679 we do see at some point a FED funds terminal 0:11:33.760 --> 0:11:36.320 rate or a peak rate, yields tend to peak a 0:11:36.320 --> 0:11:38.920 couple of months ahead of that, and so there is 0:11:39.040 --> 0:11:41.640 becoming more and more of an interesting opportunity. We have 0:11:41.679 --> 0:11:44.280 a lot of clients that are very heavily weighted in 0:11:44.360 --> 0:11:48.680 shorter duration bond CDs, you know, great source of income 0:11:48.760 --> 0:11:52.480 for now over time, we think there's an opportunity again, 0:11:52.640 --> 0:11:54.880 I know hearing mentions of CDs, c d s are 0:11:54.960 --> 0:11:59.680 are hot. It's it's very interesting, but we think there's 0:11:59.720 --> 0:12:04.440 an aportunity to complement these short term investments with longer duration, 0:12:04.559 --> 0:12:07.640 maybe some investment grade bonds that you're locking in close 0:12:07.679 --> 0:12:10.240 to four percent rates for a longer period of time. 0:12:10.360 --> 0:12:13.080 And now is a good opportunity to start thinking about that, 0:12:13.440 --> 0:12:16.840 certainly in the weeks ahead. UM. Similarly with equities, you know, 0:12:16.880 --> 0:12:20.680 of course we're down the SMP, growth has gotten killed 0:12:21.160 --> 0:12:24.080 even more than that UM, and over time there's an 0:12:24.120 --> 0:12:27.200 opportunity to complement some of those value defensive parts of 0:12:27.200 --> 0:12:31.040 the market with probably more growth, more tech as we 0:12:31.120 --> 0:12:34.880 head towards a peaking yields and stabilization and a move lower. 0:12:34.920 --> 0:12:37.480 But you know, perhaps early days, but a good time 0:12:37.520 --> 0:12:40.199 to start thinking about that portfolio diversification. What do you 0:12:40.200 --> 0:12:43.080 think about the private markets? UM. We've been hearing a 0:12:43.120 --> 0:12:46.080 lot more about that lately as well, and I think 0:12:47.000 --> 0:12:50.600 retail interest is really growing. Yeah, you know, if you 0:12:50.920 --> 0:12:54.120 don't have liquidity needs in the near term, private markets 0:12:54.120 --> 0:12:58.160 are interesting, I think not as volatile of course, probably 0:12:58.200 --> 0:13:01.680 offer that diversification you're looking for. Or will they rebound 0:13:01.840 --> 0:13:04.280 as much as the equity market may in the months 0:13:04.360 --> 0:13:06.199 or you know, a couple of years ahead. Maybe not. 0:13:06.559 --> 0:13:09.440 But I think in any allocation or any portfolio, you 0:13:09.480 --> 0:13:12.080 can consider a five to ten percent maybe even more 0:13:12.120 --> 0:13:15.640 depending on your investment horizon into private markets. I think 0:13:15.679 --> 0:13:18.560 it's a great source of diversification. Is there any sector 0:13:18.600 --> 0:13:21.880 in the equity space that you're telling your folks sharpen 0:13:21.920 --> 0:13:24.000 your pencils now, because when we do see a bottom 0:13:24.000 --> 0:13:26.280 in this market, of this market does turn or we 0:13:26.360 --> 0:13:29.480 start getting out of the heavy heavy selling, this is 0:13:29.480 --> 0:13:31.120 where you might want to want to buy after the 0:13:31.120 --> 0:13:33.560 fed's last rate high. Yeah, now, I think you know 0:13:33.559 --> 0:13:35.200 it's a great point. And look, we've we've been talking 0:13:35.200 --> 0:13:37.640 about staples and healthcare for months now. I do think 0:13:37.640 --> 0:13:39.880 healthcare is an interesting one because it can offer you 0:13:39.960 --> 0:13:42.240 some growth and some kind of value components to it. 0:13:42.240 --> 0:13:44.320 There's parts of health care that are very much focused 0:13:44.320 --> 0:13:49.599 on biotech or um, you know, next generation technologies. But interestingly, 0:13:49.600 --> 0:13:53.360 of course consumer discretionary and technology at the core is 0:13:53.360 --> 0:13:56.559 probably where we would hunt if we did think a 0:13:57.000 --> 0:13:59.400 peak in yields was ahead of us. And I think, um, 0:13:59.400 --> 0:14:02.160 it's a greight way again to to barbell your portfolio, 0:14:02.200 --> 0:14:04.760 and I think that that theme will play out. Keep 0:14:04.800 --> 0:14:08.280 in mind, when equity or economic growth slows, investors do 0:14:08.360 --> 0:14:11.120 tend to look for growth in their portfolios. So all right, 0:14:11.160 --> 0:14:13.240 good stuff. I want to really appreciate you stopping by 0:14:13.320 --> 0:14:16.959 coming into Bloomberg and actor broker Shooter Mona Madgen Senior 0:14:16.960 --> 0:14:21.280 investment strategist Edward Jones. She was on with Survive that 0:14:21.360 --> 0:14:24.360 on Bloomberg Surveillance. Yeah, so I mean it's you know 0:14:24.400 --> 0:14:27.320 when you get a big dour John Farrell on on 0:14:27.320 --> 0:14:30.200 a inflation and a huge print like that, a huge print. Yeah. 0:14:30.240 --> 0:14:32.520 So it was much and radio is much more fun anyway. 0:14:32.560 --> 0:14:34.640 So let's let's be honest, all right, looking at these markets. 0:14:34.960 --> 0:14:38.320 You know, bad news is SNPs off seven tenths of 0:14:38.360 --> 0:14:41.320 one percent. The good news is it's well off its 0:14:41.360 --> 0:14:44.240 bottom of the day. So we'll see how this market trades, 0:14:44.440 --> 0:14:47.800 uh this afternoon and yields a two year four point 0:14:47.960 --> 0:14:53.720 four or five on your two year note. All right, 0:14:53.800 --> 0:14:57.080 let's dig into the CPI data came in hotter than 0:14:57.160 --> 0:14:59.600 expected this morning, putting some more pressure on the feder 0:14:59.640 --> 0:15:02.240 Reserve the keep those rates higher. Uh, let's bring in 0:15:02.240 --> 0:15:05.000 a Bloomberg Markets reporter. Critty couped up. She joins us 0:15:05.000 --> 0:15:08.080 here in our Bloomberg Interactive Brooker Studio and Bloomberck Economics 0:15:08.120 --> 0:15:11.680 chief US economist Anna Wong. And let's start with you. Boy. 0:15:11.800 --> 0:15:15.200 You were early, and it looks like you were right. 0:15:15.440 --> 0:15:18.080 This Federal Reserve is going to need to keep interest 0:15:18.160 --> 0:15:23.880 rates higher and probably for longer. What's your latest thinking. Yeah, 0:15:23.920 --> 0:15:27.240 so so the latest thinking is still the same as 0:15:27.320 --> 0:15:30.240 we had in two months ago when we made that call. 0:15:30.880 --> 0:15:32.760 So look, when we made that call, we have the 0:15:32.840 --> 0:15:36.920 idea that inflation is going to be more persistent and stickier. 0:15:37.000 --> 0:15:39.880 And for today's cp I, we were also the highest 0:15:39.920 --> 0:15:42.680 on the street. We were calling for point six percent 0:15:42.800 --> 0:15:46.600 core CPI inflation um and and we were right and 0:15:46.760 --> 0:15:49.520 and and I think the the insight there is that 0:15:49.880 --> 0:15:52.280 there's just a part of the economy which is being 0:15:52.480 --> 0:15:56.040 very sticky inflation. And we're not talking about just shelter 0:15:56.600 --> 0:15:59.080 I mean, everybody knows that shelter cause is going to 0:15:59.120 --> 0:16:01.920 come down next here because the um the way that 0:16:01.960 --> 0:16:05.520 shelter cost is measured, it lacks private measures by about 0:16:05.560 --> 0:16:08.120 a year. So that's going to come down. But the 0:16:08.200 --> 0:16:12.840 other stuff, like your car insurance premium. You're like, when 0:16:12.880 --> 0:16:16.160 your car broke down, you need to take take you know, 0:16:16.200 --> 0:16:18.480 pay to take care to take care of the repairs. 0:16:18.720 --> 0:16:21.760 All those are still in a catch up phase or 0:16:21.800 --> 0:16:24.560 if you break down. Medical care is also more expensive. 0:16:26.000 --> 0:16:29.320 Medical care. That's the tricky part because starting next month, 0:16:29.360 --> 0:16:31.480 there's a little quirk and how it's measure that's going 0:16:31.520 --> 0:16:34.080 to produce a drag. But you know it does not 0:16:34.560 --> 0:16:38.080 you know, it does not negate the experience the household 0:16:38.240 --> 0:16:41.560 r Z in which is that their physicians bills are higher, 0:16:41.720 --> 0:16:44.840 or it's you know so So I think the point 0:16:44.920 --> 0:16:48.080 is that next year, I think it's quite unlikely for 0:16:48.160 --> 0:16:52.200 inflation to fall below three percent. Our risk model is 0:16:52.200 --> 0:16:57.200 saying that sixty eight percent chance of inflation being between 0:16:57.320 --> 0:17:00.960 three and five percent next year. Can I just say, 0:17:01.000 --> 0:17:04.959 my daughter, not your head on the table. Yeah, we 0:17:05.000 --> 0:17:06.960 had to go to the hospital. She got eight stitches, 0:17:08.800 --> 0:17:14.840 four thousand dollars in change. Wo yep, how is that possible? 0:17:14.920 --> 0:17:18.840 But she's better, Well, she's fine. I just it's very expensive. 0:17:19.800 --> 0:17:22.800 So pretty, I mean, we've got this higher print here today, 0:17:23.560 --> 0:17:26.800 stocks and bonds are reacting, but it seems kind of 0:17:26.960 --> 0:17:29.320 rational here. It feels a little bit, you know, stash 0:17:29.359 --> 0:17:30.920 are coming off the bottoms a little bit. So I'm 0:17:31.600 --> 0:17:35.199 I guess the market is trying to right. Well, it was. 0:17:35.480 --> 0:17:37.359 I think the knee jerk was certainly panic and it 0:17:37.400 --> 0:17:38.880 was there, Yeah, and it was there. It was down 0:17:38.880 --> 0:17:40.320 there for I want to say, at least thirty minutes 0:17:40.359 --> 0:17:43.199 of trading um to see them paired. I think the 0:17:43.240 --> 0:17:46.639 way it's being interpreted is simply that and one thing. 0:17:46.640 --> 0:17:48.760 We're talking about this a lot. It's about the second derivatives, 0:17:48.760 --> 0:17:52.760 about the deceleration the the going into a third month 0:17:52.840 --> 0:17:55.040 where you were now expecting a cp I print to 0:17:55.280 --> 0:17:57.520 drop further below eight point one percent. I think what 0:17:57.600 --> 0:17:59.880 it does is just kind of dropped the bar even low. 0:18:00.480 --> 0:18:02.399 Um when you have two months now where you have 0:18:02.440 --> 0:18:05.640 inflation estimated at eight point one percent, two months they've 0:18:05.680 --> 0:18:08.280 missed it. So once again the bar for the equity 0:18:08.320 --> 0:18:11.439 market is going to be even lower. So reacting to 0:18:11.520 --> 0:18:14.000 any positive news there and I think perhaps is that 0:18:14.040 --> 0:18:16.159 early sentiment they might be trading on a little bit. 0:18:16.200 --> 0:18:19.480 But honestly, uh, to me, it does also feel like 0:18:19.720 --> 0:18:21.360 a move to the dollar a little bit to move 0:18:21.400 --> 0:18:23.199 to yields. As you see yields come back down, the 0:18:23.200 --> 0:18:25.720 dollar follow I think you're seeing an inverse reaction in 0:18:25.720 --> 0:18:27.680 the equity market. And since you and your team have 0:18:27.760 --> 0:18:29.719 been so hot at predicting this stuff, we got retail 0:18:29.720 --> 0:18:31.720 sales tomorrow, you want to give me a thought of 0:18:31.720 --> 0:18:35.880 what you think it might happen there? Um, So, so 0:18:35.960 --> 0:18:38.080 I think that what what what it is, is that 0:18:38.640 --> 0:18:42.879 what's driving inflation right now according to our whole we 0:18:42.960 --> 0:18:44.719 have a whole bunch of models that we look at, 0:18:45.280 --> 0:18:49.360 is that we see a slight revival of US demand. Um. 0:18:49.400 --> 0:18:51.880 Perhaps because the last three months we have seen oil 0:18:51.920 --> 0:18:55.880 prices coming down, and how hope have more slightly slightly 0:18:56.040 --> 0:19:00.560 better resources freed up for for discretionary s menday. But 0:19:00.680 --> 0:19:03.920 still so I think that the retail sales to print 0:19:03.960 --> 0:19:06.840 tomorrow would be better than what we had seen a 0:19:06.880 --> 0:19:09.480 couple of months ago when everybody was talking about recession. 0:19:09.840 --> 0:19:13.879 But we are entering into a downshift and spending UM, 0:19:13.920 --> 0:19:17.440 as you know, gas gaffolding prices climb back up again. 0:19:18.440 --> 0:19:21.680 So whatever good years we have tomorrow, what last Yeah? Yeah, 0:19:21.720 --> 0:19:24.000 I was gonna say. We're starting to see those commodities 0:19:24.000 --> 0:19:28.960 prices rise again. We're hearing concerns about um, China going 0:19:29.000 --> 0:19:33.639 into lock Shanghai going into lockdown again. It Shanghai, Shanghai, yeah, um. 0:19:33.800 --> 0:19:36.800 And it's Vince Signarella was telling us he thinks these 0:19:36.800 --> 0:19:40.240 supply chain pressures are are the real problem here. Do 0:19:40.280 --> 0:19:44.520 you agree? Well, I think the supply chain pressure was 0:19:44.640 --> 0:19:47.480 the problem in the first phase, initial phase of this 0:19:47.600 --> 0:19:52.720 inflation uh. Period, high inflation period, but now it's it's 0:19:52.800 --> 0:19:57.080 no longer the core driver of inflation that it's rather 0:19:57.400 --> 0:20:01.040 wages trying to catch up to high inflation. The Dow 0:20:01.119 --> 0:20:04.119 actually turns positive here up forty one point on on 0:20:04.200 --> 0:20:07.280 the Dow here. Uh. And it's just real quick is 0:20:07.280 --> 0:20:10.200 a recession? Where are you in terms of a recession call? 0:20:10.280 --> 0:20:12.439 And i'd get a sense of how long it might be, 0:20:12.520 --> 0:20:15.040 how deep it might be, or what are you guys thinking? 0:20:15.960 --> 0:20:19.199 Our baseline is for our recession to begin around the 0:20:19.240 --> 0:20:24.800 middle of next year. UM, I myself an increasing increasingly 0:20:24.840 --> 0:20:27.880 of the thinking that it might be not a shallow one, 0:20:27.960 --> 0:20:30.760 it could be a deep one because the FED is 0:20:30.760 --> 0:20:34.919 is keen on holding rates higher for longer. And in 0:20:34.960 --> 0:20:37.720 all the past recessions, the FED we cut in the 0:20:37.800 --> 0:20:40.760