1 00:00:02,440 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,840 Speaker 2: Terminal and the Bloomberg Business App. 10 00:00:36,200 --> 00:00:38,360 Speaker 1: Joining us now, I'm so pleased to say, is Stephen Meyer, 11 00:00:38,440 --> 00:00:42,080 Speaker 1: chief investment Officer for the New York City Retirement Systems. Stephen, 12 00:00:42,120 --> 00:00:44,319 Speaker 1: it's wonderful to speak with you as someone who has 13 00:00:44,360 --> 00:00:49,400 Speaker 1: to be a sort of an adjudicator of the national 14 00:00:49,479 --> 00:00:53,479 Speaker 1: policies of how we invest for public servants. How do 15 00:00:53,520 --> 00:00:57,720 Speaker 1: you understand the confidence, the bullishness in a market that 16 00:00:57,920 --> 00:01:00,400 Speaker 1: is really hinging on such a narrow leader ship. 17 00:01:00,680 --> 00:01:02,400 Speaker 3: Well, I think if you look at the markets right now, 18 00:01:02,480 --> 00:01:05,440 Speaker 3: you're right, there's no breadth, and clearly there are some 19 00:01:05,440 --> 00:01:10,000 Speaker 3: real concentration risks. People talk about American exceptionalism. I think 20 00:01:10,000 --> 00:01:13,199 Speaker 3: it's the artificial intelligence tailo effect that we saw last 21 00:01:13,280 --> 00:01:16,000 Speaker 3: year spilling over to this year. So we look at 22 00:01:16,040 --> 00:01:19,080 Speaker 3: it from a standpoint of it's really megacap exceptionalism. 23 00:01:19,400 --> 00:01:19,880 Speaker 4: What we do. 24 00:01:19,920 --> 00:01:22,839 Speaker 3: Though we're long term investors. We managed the versified portfolios 25 00:01:22,840 --> 00:01:27,240 Speaker 3: that are resilient, made to perform in different types of environment. 26 00:01:27,360 --> 00:01:30,720 Speaker 3: So we're more strategic than tactical. We're not actually trading. 27 00:01:31,640 --> 00:01:34,959 Speaker 3: Having said that, we have recently done strategic gas allocations 28 00:01:34,959 --> 00:01:38,840 Speaker 3: across the five plans. We are reducing our exposure at 29 00:01:38,880 --> 00:01:43,360 Speaker 3: the margin to US equities large cap in particular, we're 30 00:01:43,400 --> 00:01:45,800 Speaker 3: flat to maybe down a little less in non US 31 00:01:45,880 --> 00:01:49,440 Speaker 3: equities to funded increased investments in private assets. 32 00:01:50,080 --> 00:01:52,720 Speaker 4: Within those private assets, because I know you made announcement 33 00:01:52,720 --> 00:01:55,560 Speaker 4: to start this year that you would start increasing your allocations, 34 00:01:56,160 --> 00:01:58,560 Speaker 4: how are you thinking about real estate within that? Because 35 00:01:58,560 --> 00:02:01,400 Speaker 4: there's still trouble, see I said, thirty eight billion dollars 36 00:02:01,440 --> 00:02:03,800 Speaker 4: worth of office buildings. We're still in distress. Surely it's 37 00:02:03,800 --> 00:02:06,200 Speaker 4: only going to be worse with stubborn rates and loans 38 00:02:06,200 --> 00:02:09,080 Speaker 4: coming due. Have you pulled back your exposure on real 39 00:02:09,160 --> 00:02:10,760 Speaker 4: estate specifically. 40 00:02:10,280 --> 00:02:14,760 Speaker 3: Not necessarily, Danny. We have obviously diversified portfolio. We're non 41 00:02:14,880 --> 00:02:17,800 Speaker 3: core and core real estate investments. If you look at 42 00:02:17,840 --> 00:02:20,280 Speaker 3: our investment portfolio right now, it's about thirty one percent 43 00:02:20,360 --> 00:02:23,760 Speaker 3: multifamily in real estate, probably about thirty six percent in 44 00:02:23,760 --> 00:02:27,359 Speaker 3: industrial logistics, so we're diversified away. We have an underweight 45 00:02:27,720 --> 00:02:31,600 Speaker 3: intentional underweight in retail and office space in particular. I 46 00:02:31,600 --> 00:02:33,679 Speaker 3: think it's another two years and in terms of those 47 00:02:34,120 --> 00:02:35,880 Speaker 3: situations working at at least. 48 00:02:35,639 --> 00:02:37,480 Speaker 4: Another two years. So how do you want to be 49 00:02:37,520 --> 00:02:39,760 Speaker 4: positioned for two years? I mean, do you pull out 50 00:02:39,760 --> 00:02:43,160 Speaker 4: completely when that comes due? That is a scary prospect 51 00:02:43,360 --> 00:02:46,280 Speaker 4: because again, what we've seen is this rolling default. It's 52 00:02:46,280 --> 00:02:48,800 Speaker 4: not this one big event, it's this continued issue. So 53 00:02:48,800 --> 00:02:50,120 Speaker 4: what does that look like in two years? 54 00:02:50,240 --> 00:02:53,000 Speaker 3: Yeah, for us, it's more around putting money to work, 55 00:02:53,080 --> 00:02:55,680 Speaker 3: putting new money into the sectors. So obviously we're not 56 00:02:55,800 --> 00:02:57,839 Speaker 3: for sellers. We don't need to be a seller. We're 57 00:02:57,880 --> 00:03:00,440 Speaker 3: long term investors again with a much longer term, and 58 00:03:00,480 --> 00:03:03,480 Speaker 3: so we're not panicking, but we're also not stepping in 59 00:03:03,480 --> 00:03:05,040 Speaker 3: at this point. I know there are some smart people 60 00:03:05,120 --> 00:03:07,800 Speaker 3: out there that think, well, we're evaluations are on prices 61 00:03:07,800 --> 00:03:11,320 Speaker 3: are it's probably close to bottom. I'm a little suspicious. 62 00:03:11,320 --> 00:03:12,240 Speaker 3: I think that is a little more to. 63 00:03:12,240 --> 00:03:16,400 Speaker 4: Go elsewhere, you know, if it is higher for longer. 64 00:03:16,680 --> 00:03:18,640 Speaker 4: If it is we're not going back to a zero 65 00:03:18,760 --> 00:03:22,680 Speaker 4: rate environment. Are there other investments that you've had to rethink, 66 00:03:22,720 --> 00:03:26,040 Speaker 4: things that just frankly won't work in this environment going forward? 67 00:03:26,520 --> 00:03:30,120 Speaker 3: Well, you know, I'd say we focus more on fixed 68 00:03:30,200 --> 00:03:32,520 Speaker 3: income as a core holding in the portfolio. So if 69 00:03:32,560 --> 00:03:34,519 Speaker 3: you look at the yields you're able to get both 70 00:03:34,520 --> 00:03:37,320 Speaker 3: in private and public fixed income now it's you know, 71 00:03:37,360 --> 00:03:39,720 Speaker 3: obviously more compelling than it was in a zero interest 72 00:03:39,760 --> 00:03:42,680 Speaker 3: rate environment. I also think the zero interest rate environment 73 00:03:42,720 --> 00:03:45,120 Speaker 3: was very negative for the markets. I think it actually 74 00:03:45,560 --> 00:03:50,080 Speaker 3: leads to suboptimal investment decision. Over leverage another concern I 75 00:03:50,080 --> 00:03:52,160 Speaker 3: have just where we are right now, we've got leverage 76 00:03:52,200 --> 00:03:54,120 Speaker 3: around the world that what two hundred and twenty five 77 00:03:54,160 --> 00:03:57,320 Speaker 3: to two hundred fifty percent of global GDP. I think 78 00:03:57,360 --> 00:03:58,760 Speaker 3: that's going to be more of a challenge I think 79 00:03:58,760 --> 00:03:59,960 Speaker 3: domestically and abroad. 80 00:04:00,520 --> 00:04:02,400 Speaker 5: How concerned are you about the deficit? Then? 81 00:04:02,680 --> 00:04:04,960 Speaker 6: Given your last point, are you in the Steve Eisman's 82 00:04:05,000 --> 00:04:07,040 Speaker 6: camp of as Lisa would say, way the deficit? 83 00:04:07,760 --> 00:04:10,080 Speaker 3: Yeah, I am concerned about the deficit. If you just 84 00:04:10,080 --> 00:04:12,880 Speaker 3: look at the trajectory of the deficits that we're racking up. 85 00:04:12,920 --> 00:04:16,440 Speaker 3: We've got about ninety eight percent of outstanding US Treasury's 86 00:04:16,440 --> 00:04:19,520 Speaker 3: relative to GDP, expected to go up to about one 87 00:04:19,600 --> 00:04:22,000 Speaker 3: hundred and sixteen percent of GDP by in the next 88 00:04:22,040 --> 00:04:25,080 Speaker 3: ten years. Those are dangerous levels and just the amount 89 00:04:25,120 --> 00:04:28,200 Speaker 3: of paper we need to roll consistently through the eauction process. 90 00:04:28,440 --> 00:04:30,599 Speaker 3: I know, Lisa, you follow the auctions. We had a 91 00:04:30,600 --> 00:04:32,960 Speaker 3: couple of good auctions those past month. We did tens 92 00:04:33,000 --> 00:04:35,640 Speaker 3: in thirties one okay, three is not so well better 93 00:04:35,680 --> 00:04:38,680 Speaker 3: than twos, five and sevens last month. I think it's 94 00:04:38,720 --> 00:04:40,760 Speaker 3: worth watching because I think there's a lot of information 95 00:04:40,839 --> 00:04:43,120 Speaker 3: coming out of those auctions, and I do think the 96 00:04:43,160 --> 00:04:45,120 Speaker 3: size of the auctions are going to be a headwind 97 00:04:45,160 --> 00:04:47,800 Speaker 3: for the markets. It's an a risk factor for investors. 98 00:04:47,920 --> 00:04:49,040 Speaker 5: Can you give us some perspective. 99 00:04:49,040 --> 00:04:51,440 Speaker 1: You said you just shifted your asset allocation to focus 100 00:04:51,480 --> 00:04:52,600 Speaker 1: more on private assets. 101 00:04:53,279 --> 00:04:54,719 Speaker 5: Was that away from equities? 102 00:04:54,920 --> 00:04:55,919 Speaker 1: Was that away from bonds? 103 00:04:56,040 --> 00:04:56,920 Speaker 5: Was it away from both? 104 00:04:56,960 --> 00:04:58,640 Speaker 1: I mean, how does it sort of break down now 105 00:04:58,800 --> 00:04:59,800 Speaker 1: versus say to. 106 00:04:59,760 --> 00:05:00,360 Speaker 5: Your is it go? 107 00:05:00,600 --> 00:05:00,800 Speaker 7: Yeah? 108 00:05:00,839 --> 00:05:03,920 Speaker 3: So we were operating under somewhat of a constrained opportunity set, 109 00:05:03,960 --> 00:05:06,040 Speaker 3: so we had a limit up to only twenty five 110 00:05:06,040 --> 00:05:08,719 Speaker 3: percent in private assets. That's now been an increased to 111 00:05:08,800 --> 00:05:11,400 Speaker 3: legislation of thirty five percent. So we were a little 112 00:05:11,440 --> 00:05:14,800 Speaker 3: overweight in global equities. We pulled those positions back a 113 00:05:14,839 --> 00:05:19,719 Speaker 3: little bit, mostly from US large cap in particular. But 114 00:05:19,800 --> 00:05:21,760 Speaker 3: you know, we still see a lot of opportunities out 115 00:05:21,800 --> 00:05:26,000 Speaker 3: in the private assets sector. We think that's a growing 116 00:05:26,040 --> 00:05:28,520 Speaker 3: area of interest. A lot of people have pulled back 117 00:05:28,560 --> 00:05:32,440 Speaker 3: because they've been overdone. We've seen opportunities in secondary sales, 118 00:05:32,480 --> 00:05:35,719 Speaker 3: so we're actually you know, continue to put money to work. 119 00:05:36,080 --> 00:05:39,159 Speaker 3: I think, very proactive in those spots. We like private credit. 120 00:05:39,520 --> 00:05:42,240 Speaker 3: We think the private credit is actually compelling in terms 121 00:05:42,320 --> 00:05:46,120 Speaker 3: of you know, obviously absolute returns in the base levels higher. 122 00:05:46,279 --> 00:05:49,240 Speaker 3: Most of those obligations are floating. We've got the sofa 123 00:05:49,360 --> 00:05:52,400 Speaker 3: through the sofa with five thirty four, so we have 124 00:05:52,440 --> 00:05:56,000 Speaker 3: a seven percent actually assume raady to return or benchmark, 125 00:05:56,760 --> 00:05:59,560 Speaker 3: and I'm proud to say so far fifth weeeear to 126 00:05:59,640 --> 00:06:02,320 Speaker 3: date we're ahead of that. We got another eight or 127 00:06:02,400 --> 00:06:04,080 Speaker 3: nine trading days, so we'll see what we want. 128 00:06:04,240 --> 00:06:06,560 Speaker 4: There has been this widespread criticism of private credit that 129 00:06:06,560 --> 00:06:08,880 Speaker 4: they've been in this extent and pretend mode that they've 130 00:06:08,920 --> 00:06:11,320 Speaker 4: just been waiting for rate cuts and until that happens, 131 00:06:11,320 --> 00:06:14,200 Speaker 4: they've been very lenient to those that they've been lending to. 132 00:06:14,320 --> 00:06:18,120 Speaker 4: But at some point the music stops do share that concern? 133 00:06:18,320 --> 00:06:20,400 Speaker 4: And how careful have you been picking managers? 134 00:06:20,680 --> 00:06:21,160 Speaker 5: If you do? 135 00:06:21,400 --> 00:06:23,600 Speaker 3: Great question, Danny, So, I think you have to be 136 00:06:23,640 --> 00:06:25,960 Speaker 3: really careful. There's a lot of new entrants into the 137 00:06:25,960 --> 00:06:29,520 Speaker 3: private credit markets. We tend to focus on the areas 138 00:06:29,520 --> 00:06:32,200 Speaker 3: the Apollos, the okill advisors of the world. We do 139 00:06:32,320 --> 00:06:37,000 Speaker 3: most of those investments through separately man's accounts, fors the GPS, 140 00:06:37,080 --> 00:06:41,240 Speaker 3: or as a limited partner. We still see good opportunity there, 141 00:06:41,240 --> 00:06:43,679 Speaker 3: but you really need to pick your managers. We also 142 00:06:43,760 --> 00:06:47,640 Speaker 3: like more opportunistic funds that can toggle between public and 143 00:06:47,640 --> 00:06:50,440 Speaker 3: private where they think the valuations are cheaper. 144 00:06:50,520 --> 00:06:52,479 Speaker 4: Well, that gets to this other part of the industry 145 00:06:52,480 --> 00:06:54,880 Speaker 4: that the small players can't survive anymore. That in private 146 00:06:54,920 --> 00:06:57,640 Speaker 4: assets is just the big getting bitter as an asset 147 00:06:57,640 --> 00:06:58,680 Speaker 4: allocated yourself. 148 00:06:59,080 --> 00:06:59,960 Speaker 5: Is that what you expect? 149 00:07:00,080 --> 00:07:02,480 Speaker 4: Do you expect that the smaller players are not going 150 00:07:02,520 --> 00:07:05,159 Speaker 4: to have that demand and some sort of consolidation needs 151 00:07:05,200 --> 00:07:06,240 Speaker 4: to happen in this industry. 152 00:07:06,360 --> 00:07:06,719 Speaker 5: I don't know. 153 00:07:06,720 --> 00:07:09,720 Speaker 3: I think obviously, because of our size, we have the 154 00:07:09,720 --> 00:07:11,760 Speaker 3: privilege of managing at two hundred and eighty billion dollars 155 00:07:11,760 --> 00:07:14,640 Speaker 3: in assets, we tend to gravitate to as the larger managers. 156 00:07:15,600 --> 00:07:18,360 Speaker 3: I think the difference for us this year is there's 157 00:07:18,400 --> 00:07:19,960 Speaker 3: been a lot of pullback on the part of other 158 00:07:20,000 --> 00:07:23,240 Speaker 3: public pension plans and institutional investors, so we're able to 159 00:07:23,240 --> 00:07:25,960 Speaker 3: get better access to the better managers and negotiate much 160 00:07:26,000 --> 00:07:29,960 Speaker 3: better fees co investments in terms of averaging down the 161 00:07:30,000 --> 00:07:31,960 Speaker 3: costs of those transactions. 162 00:07:32,320 --> 00:07:35,680 Speaker 1: So just to say, today we're talking about retail sales, 163 00:07:35,680 --> 00:07:38,200 Speaker 1: we're talking about FED speak. Do you watch any of that? 164 00:07:38,360 --> 00:07:38,880 Speaker 5: Do care? 165 00:07:39,080 --> 00:07:41,400 Speaker 1: Or is it sort of you know, noise as you 166 00:07:41,440 --> 00:07:43,360 Speaker 1: focus on ways to uncorrelate yourself with. 167 00:07:43,520 --> 00:07:45,920 Speaker 3: Lisa, I shouldn't watch that, but of course I watch that, 168 00:07:46,520 --> 00:07:50,280 Speaker 3: and I'll tell you why. Obviously, our underlying beneficiars and 169 00:07:50,320 --> 00:07:52,640 Speaker 3: participants watch that, and we get questions all the time. 170 00:07:52,680 --> 00:07:54,360 Speaker 3: My trustees call me all the time and see what's 171 00:07:54,360 --> 00:07:56,360 Speaker 3: going on in the market. People are concerned, how do 172 00:07:56,400 --> 00:07:58,680 Speaker 3: you feel about things? So we watch it. We watch 173 00:07:58,760 --> 00:08:01,880 Speaker 3: it also as a matter of of managing and monitoring 174 00:08:01,920 --> 00:08:04,480 Speaker 3: the performance of the funds or the managing the expectation. 175 00:08:05,440 --> 00:08:08,200 Speaker 3: But yeah, we focus on all that we're in the markets. 176 00:08:08,800 --> 00:08:11,320 Speaker 3: But as I said earlier, we're not tactical and more 177 00:08:11,360 --> 00:08:14,880 Speaker 3: strategic more long term, but we do care what happens 178 00:08:14,880 --> 00:08:15,920 Speaker 3: in the short term as well. 179 00:08:16,040 --> 00:08:18,160 Speaker 5: Steven Meyer, wonderful to see you. Thank you so much 180 00:08:18,200 --> 00:08:20,200 Speaker 5: for being with us. Really great to hear what you 181 00:08:20,240 --> 00:08:20,600 Speaker 5: have to say. 182 00:08:20,600 --> 00:08:33,400 Speaker 1: Stephen Meyer of the New York City at Retirement Systems. Here, 183 00:08:33,440 --> 00:08:40,000 Speaker 1: Jepperdson of Pantheon Macroeconomics, and Greg Daco of e Y Greg. 184 00:08:39,880 --> 00:08:41,640 Speaker 5: I want to start with you. Both of you. 185 00:08:41,840 --> 00:08:44,599 Speaker 1: Ian and Greg are talking about how the balance of 186 00:08:44,720 --> 00:08:47,680 Speaker 1: risks is. We are seeing real weakness and this is 187 00:08:47,760 --> 00:08:50,640 Speaker 1: just a tipping point that is going to deepen. What 188 00:08:50,720 --> 00:08:53,600 Speaker 1: are these retail sales do to kind of edify that 189 00:08:53,679 --> 00:08:54,439 Speaker 1: feeling of yours. 190 00:08:54,679 --> 00:08:56,640 Speaker 8: I think what they indicate is an environment where you're 191 00:08:56,640 --> 00:08:59,240 Speaker 8: seeing a bit of a more cautions, more prudence on 192 00:08:59,280 --> 00:09:01,600 Speaker 8: the part of consumer. And this is not new. We've 193 00:09:01,640 --> 00:09:04,560 Speaker 8: been seeing consumers be a little bit more careful, be 194 00:09:04,640 --> 00:09:07,959 Speaker 8: a little bit more sensitive to higher prices. This cost 195 00:09:08,000 --> 00:09:10,520 Speaker 8: fatigue that we've been talking about for a few months 196 00:09:10,520 --> 00:09:13,400 Speaker 8: now is now starting to be visible in the data. 197 00:09:13,480 --> 00:09:16,160 Speaker 8: We're seeing a little bit more caution when it comes 198 00:09:16,160 --> 00:09:19,760 Speaker 8: to outlays. When you adjust outlays for prices, you're actually 199 00:09:19,760 --> 00:09:22,280 Speaker 8: seeing a contraction in retail sales on a year or 200 00:09:22,280 --> 00:09:25,960 Speaker 8: a year basis. Service sector spending is still relatively strong, 201 00:09:26,120 --> 00:09:28,520 Speaker 8: but we are seeing more caution. And the key reason 202 00:09:28,559 --> 00:09:30,880 Speaker 8: for that additional caution is the fact that you're seeing 203 00:09:30,920 --> 00:09:34,640 Speaker 8: some softening in the labor market. Not a retrenching, nothing alarming, 204 00:09:34,800 --> 00:09:37,160 Speaker 8: but a bit more caution in the labor market as well. 205 00:09:37,240 --> 00:09:40,160 Speaker 1: What's the gap in between a bit more caution and 206 00:09:40,240 --> 00:09:44,160 Speaker 1: true weakening given that this is two straight months and 207 00:09:44,240 --> 00:09:46,200 Speaker 1: pretty negative downward revisions as well. 208 00:09:46,520 --> 00:09:50,160 Speaker 7: Yeah, the diamond revision is disconcerting because it sounds to 209 00:09:50,200 --> 00:09:53,040 Speaker 7: me like the control group now is essentially flat over 210 00:09:53,080 --> 00:09:55,280 Speaker 7: the last couple of months and have been weakening before 211 00:09:55,360 --> 00:09:57,360 Speaker 7: that as well in terms of the growth rate. So 212 00:09:57,960 --> 00:10:00,480 Speaker 7: this is beginning to be stunt to look like an 213 00:10:00,679 --> 00:10:03,680 Speaker 7: entrenched softening, I mean, not a rollover. You know, it's 214 00:10:03,720 --> 00:10:06,920 Speaker 7: not a disaster by any means, but it's very different 215 00:10:06,920 --> 00:10:08,640 Speaker 7: to what we saw last year. Remember the second half 216 00:10:08,640 --> 00:10:11,520 Speaker 7: of last year. We're looking at constant upside surprises and 217 00:10:11,760 --> 00:10:14,079 Speaker 7: the consumer's charging along a three percent reel through the 218 00:10:14,120 --> 00:10:16,080 Speaker 7: whole second half of the year. We're not going to 219 00:10:16,080 --> 00:10:18,480 Speaker 7: do anything like that in the first half of this year. 220 00:10:18,720 --> 00:10:21,640 Speaker 7: And I think part of the reason here is as 221 00:10:21,640 --> 00:10:24,040 Speaker 7: well as the lad market weakening, which is definitely real. 222 00:10:24,080 --> 00:10:25,760 Speaker 7: You can see in the surveys that people are getting 223 00:10:25,760 --> 00:10:28,360 Speaker 7: nervous about job security for the first time in this cycle. 224 00:10:28,600 --> 00:10:31,000 Speaker 7: But they've also got less cash flow. You know, real 225 00:10:31,040 --> 00:10:33,760 Speaker 7: income growth after tax is a lot lower than it 226 00:10:33,840 --> 00:10:36,840 Speaker 7: was this time last year. Payroll growth is lower, wage 227 00:10:36,880 --> 00:10:39,440 Speaker 7: growth is lower. There's just less cash around, and so 228 00:10:39,760 --> 00:10:41,800 Speaker 7: people are just being a little bit more cautious at 229 00:10:41,840 --> 00:10:43,640 Speaker 7: the margin. If you're a bit more cautious at the 230 00:10:43,679 --> 00:10:45,960 Speaker 7: margin for a few months, it starts to build into 231 00:10:46,000 --> 00:10:46,560 Speaker 7: something real. 232 00:10:46,679 --> 00:10:48,720 Speaker 4: And what it really speaks to me is if we 233 00:10:48,760 --> 00:10:52,240 Speaker 4: have this price fatigue, is do corporates have pricing power anymore? 234 00:10:52,280 --> 00:10:54,320 Speaker 4: We have seen some of those margins start to thin. 235 00:10:54,640 --> 00:10:56,160 Speaker 4: So if we're in a world where corporates are having 236 00:10:56,240 --> 00:10:59,560 Speaker 4: thinning margins, you don't have that labor constraint that you 237 00:10:59,640 --> 00:11:03,600 Speaker 4: once did. Is this as Ian as Jan Hatzias over 238 00:11:03,679 --> 00:11:06,360 Speaker 4: at Goldman's access an inflection point for the labor market. 239 00:11:06,640 --> 00:11:08,400 Speaker 7: It's an inflection fund for the lab market for sure, 240 00:11:08,400 --> 00:11:10,800 Speaker 7: but it's also an inflection point for the inflation story 241 00:11:10,840 --> 00:11:13,760 Speaker 7: as well, because that margin expansion that we saw during 242 00:11:13,760 --> 00:11:16,360 Speaker 7: the pandemic and in the year afterwards was a huge 243 00:11:16,440 --> 00:11:19,040 Speaker 7: driver of the increase in inflation, and most businesses have 244 00:11:19,160 --> 00:11:22,439 Speaker 7: held onto those margins. But if they're starting to crumble now, 245 00:11:22,480 --> 00:11:24,840 Speaker 7: so we're actually seeing them come down rather than just 246 00:11:25,160 --> 00:11:27,280 Speaker 7: hang around the highs. If we start to see them 247 00:11:27,320 --> 00:11:30,000 Speaker 7: come down, it really does change inflation picture because it 248 00:11:30,040 --> 00:11:32,280 Speaker 7: was a really big part of the inflation story. That's 249 00:11:32,320 --> 00:11:34,800 Speaker 7: not kind of widely appreciated, but it's why I think 250 00:11:34,800 --> 00:11:37,760 Speaker 7: core inflation next year goes below the FEDS target because 251 00:11:37,760 --> 00:11:40,240 Speaker 7: of margin compression and it's just beginning to creep in 252 00:11:40,440 --> 00:11:40,839 Speaker 7: greg What. 253 00:11:40,800 --> 00:11:42,440 Speaker 5: Do you think about that, Is this an inflection point? 254 00:11:42,640 --> 00:11:44,880 Speaker 8: I tend to believe so as well for inflation in particular, 255 00:11:44,960 --> 00:11:47,719 Speaker 8: because we have seen more pricing sensitivity on the part 256 00:11:47,760 --> 00:11:51,200 Speaker 8: of consumers. We're also seeing markups fall. We're in deflation 257 00:11:51,320 --> 00:11:53,719 Speaker 8: territory when you look at some of the PPI indices 258 00:11:53,880 --> 00:11:58,000 Speaker 8: for consumer pass through, and we are still seeing some 259 00:11:58,080 --> 00:12:01,800 Speaker 8: disinflationary currents in terms of the rent inflation side, and 260 00:12:01,880 --> 00:12:05,320 Speaker 8: wage growth is also moderating. Put all that together, and 261 00:12:05,440 --> 00:12:08,559 Speaker 8: all of the fundamental indicators in terms of inflation are 262 00:12:08,600 --> 00:12:11,560 Speaker 8: pointing towards further disinflation. So if you have a forward 263 00:12:11,600 --> 00:12:14,800 Speaker 8: looking perspective, that is the right type of mix that 264 00:12:14,880 --> 00:12:17,360 Speaker 8: you want to see from a FED perspective in terms 265 00:12:17,360 --> 00:12:20,640 Speaker 8: of easing monetary polsy, not to bring rates down to zero, 266 00:12:20,880 --> 00:12:23,960 Speaker 8: but to recalibrate monetary polsy to today's reality. 267 00:12:24,080 --> 00:12:26,080 Speaker 5: So does December make sense in that scenario? 268 00:12:26,320 --> 00:12:28,560 Speaker 8: I think September makes sense. I would have actually thought 269 00:12:28,559 --> 00:12:31,440 Speaker 8: that July made a lot of sense, even potentially June. 270 00:12:31,600 --> 00:12:33,960 Speaker 8: You're not talking about cutting rates down to zero to 271 00:12:34,040 --> 00:12:37,680 Speaker 8: stimulate the economy and prevent a recession. You're talking about 272 00:12:37,800 --> 00:12:40,880 Speaker 8: how do you recalibrate monetary polsy for an environment where 273 00:12:40,880 --> 00:12:44,920 Speaker 8: inflation PC inflation core PC inflation is within striking distance 274 00:12:44,960 --> 00:12:47,120 Speaker 8: of the two percent target, likely to be around two 275 00:12:47,160 --> 00:12:49,960 Speaker 8: point six percent in May. That is a point at 276 00:12:50,000 --> 00:12:53,480 Speaker 8: which you want to start considering recalibrating monetary polsy to 277 00:12:53,559 --> 00:12:57,000 Speaker 8: have the optimal framework in an economy. As Ian was saying, 278 00:12:57,120 --> 00:13:00,000 Speaker 8: where the labor market is gradually cooling for wage growth, 279 00:13:00,440 --> 00:13:02,920 Speaker 8: nper or growth are cooling and where inflation is moving 280 00:13:02,920 --> 00:13:03,600 Speaker 8: in the right direction. 281 00:13:03,920 --> 00:13:07,320 Speaker 6: We do hear from the New York FED President Williams 282 00:13:07,360 --> 00:13:09,760 Speaker 6: also speaking right now action he's talking about that they're 283 00:13:09,760 --> 00:13:10,640 Speaker 6: going to be data dependent. 284 00:13:10,679 --> 00:13:12,560 Speaker 5: Well, they are data dependent. This is the data. Do 285 00:13:12,600 --> 00:13:15,319 Speaker 5: you think they need to take another look at their dots? 286 00:13:15,559 --> 00:13:17,640 Speaker 7: Absolutely? Greg and I are going to have an agreement 287 00:13:17,640 --> 00:13:20,400 Speaker 7: fest here. But I honestly I wish they'd cut rates 288 00:13:20,480 --> 00:13:23,280 Speaker 7: last week and they didn't, so I wish I'd cut 289 00:13:23,320 --> 00:13:25,960 Speaker 7: them in July, but they probably won't. What worries me 290 00:13:26,040 --> 00:13:29,000 Speaker 7: here is that they're very backward looking, and they're constantly 291 00:13:29,040 --> 00:13:31,920 Speaker 7: talking about what the data have been doing, and there's 292 00:13:31,960 --> 00:13:34,640 Speaker 7: not enough discussion from the FED about where the leading 293 00:13:34,640 --> 00:13:36,720 Speaker 7: indicators of which the US has an abundance. I mean, 294 00:13:36,760 --> 00:13:39,599 Speaker 7: we've got we have dozens of reliable indicators of the 295 00:13:39,640 --> 00:13:42,800 Speaker 7: labor market, consumers, everything, and they seem to be resolutely 296 00:13:42,800 --> 00:13:45,240 Speaker 7: ignoring them in favor of looking at the backward looking stuff. 297 00:13:45,960 --> 00:13:48,360 Speaker 7: And if you carry on doing that, then by definition, 298 00:13:48,640 --> 00:13:51,000 Speaker 7: you're going to be late when you start cutting rates. 299 00:13:51,000 --> 00:13:52,319 Speaker 7: And the danger then is that you end up with 300 00:13:52,360 --> 00:13:55,360 Speaker 7: the economy slowing more than it needs to for longer 301 00:13:55,400 --> 00:13:57,360 Speaker 7: than it needs to. So I think a bit of 302 00:13:57,400 --> 00:13:59,360 Speaker 7: courage here maybe, and to say, Okay, we don't have 303 00:13:59,360 --> 00:14:01,520 Speaker 7: to wait UNTI we're one hundred percent certain inflation is 304 00:14:01,559 --> 00:14:03,920 Speaker 7: going to get to the targets. But to be reasonably 305 00:14:03,960 --> 00:14:06,560 Speaker 7: sure now, I think is a pretty solid case. You know, 306 00:14:06,960 --> 00:14:09,280 Speaker 7: the coll PC over the next few months, you know, 307 00:14:09,400 --> 00:14:11,840 Speaker 7: is going to be two something, and it's not a 308 00:14:11,840 --> 00:14:13,840 Speaker 7: million miles away, and yet rates are still. 309 00:14:13,640 --> 00:14:15,480 Speaker 5: At the highst if you are just joining us. 310 00:14:15,480 --> 00:14:18,320 Speaker 1: We did get retail sales about nine minutes ago, and 311 00:14:18,360 --> 00:14:20,320 Speaker 1: you can see they came in across the board lower 312 00:14:20,360 --> 00:14:24,320 Speaker 1: than expected, with downward revisions across the board as well 313 00:14:24,360 --> 00:14:27,360 Speaker 1: to the prior month. You could see the headline coming 314 00:14:27,560 --> 00:14:30,880 Speaker 1: at zero point one percent versus the expected zero point 315 00:14:30,880 --> 00:14:33,520 Speaker 1: three percent and a decline in the prior month of 316 00:14:33,600 --> 00:14:36,640 Speaker 1: zero point two percent. Looking under the hood at exactly 317 00:14:36,680 --> 00:14:39,160 Speaker 1: what was driving this, this is actually interesting and it 318 00:14:39,160 --> 00:14:41,560 Speaker 1: speaks to some of the homebuilder story that we were 319 00:14:41,560 --> 00:14:45,600 Speaker 1: talking about earlier. Furniture and home purchases were down one 320 00:14:45,640 --> 00:14:48,520 Speaker 1: point one percent on the month. You can see building 321 00:14:48,600 --> 00:14:51,560 Speaker 1: materials down zero point eight percent on the month. 322 00:14:51,840 --> 00:14:53,760 Speaker 5: You could see this pretty much across the board. 323 00:14:53,880 --> 00:14:57,080 Speaker 1: What are the parts that bolstered this retail report? Vehicles 324 00:14:57,120 --> 00:15:00,320 Speaker 1: and parts zero point eight percent gain, auto dealers zero 325 00:15:00,360 --> 00:15:04,320 Speaker 1: point eight percent gain. You could see gas prices going down, 326 00:15:04,520 --> 00:15:07,800 Speaker 1: that's gas station zero two point two percent decline, but 327 00:15:07,960 --> 00:15:11,320 Speaker 1: sporting and book costs two point eight percent. Glad to 328 00:15:11,360 --> 00:15:13,680 Speaker 1: see that people are buying books. To me, that sort 329 00:15:13,680 --> 00:15:17,040 Speaker 1: of raises this question greg about how much the suppressed 330 00:15:17,040 --> 00:15:20,000 Speaker 1: housing market. Some people might argue the broken housing market 331 00:15:20,080 --> 00:15:23,880 Speaker 1: is suppressing retail sales in a way that's distorting the data, 332 00:15:23,920 --> 00:15:27,680 Speaker 1: and frankly, could rebound really substantially if rates come down, 333 00:15:28,040 --> 00:15:32,000 Speaker 1: people buy homes again if they find it accessible. Is 334 00:15:32,000 --> 00:15:36,400 Speaker 1: this sort of muddy data that's being skewed by otherwise 335 00:15:36,760 --> 00:15:38,280 Speaker 1: kind of broken housing markets. 336 00:15:38,520 --> 00:15:41,880 Speaker 8: So the housing market's certainly frozen, But I'm not sure 337 00:15:41,920 --> 00:15:44,440 Speaker 8: you're going to see a massive reacceleration in the housing 338 00:15:44,480 --> 00:15:46,760 Speaker 8: market unless you see one of two things or one 339 00:15:46,760 --> 00:15:49,960 Speaker 8: of three things. One price is falling quite dramatically, two 340 00:15:50,200 --> 00:15:53,920 Speaker 8: interest rates falling quite dramatically, or three income growth accelerating 341 00:15:53,960 --> 00:15:56,320 Speaker 8: quite dramatically. As Ian was pointing out, we have real 342 00:15:56,360 --> 00:15:58,960 Speaker 8: disposable income growth that's currently at one percent, that's a 343 00:15:59,000 --> 00:16:01,760 Speaker 8: really low number. You have home prices that are still 344 00:16:01,800 --> 00:16:05,240 Speaker 8: high and still coming up higher and higher given the 345 00:16:05,360 --> 00:16:07,680 Speaker 8: lack of supply, and you have interest rates that are 346 00:16:07,760 --> 00:16:11,160 Speaker 8: unlikely to fall back quite massively, given that the FED 347 00:16:11,360 --> 00:16:14,320 Speaker 8: is likely to maintain this higher for longer monetary policy stent. 348 00:16:14,400 --> 00:16:17,000 Speaker 8: So I don't see that as a potential for a comeback. 349 00:16:17,360 --> 00:16:20,120 Speaker 8: And if you look at the underlying drivers of consumer 350 00:16:20,200 --> 00:16:23,160 Speaker 8: spending here, you have income growth that is still moderate, 351 00:16:23,280 --> 00:16:25,600 Speaker 8: you have a low savings rate, and you have wealth 352 00:16:25,640 --> 00:16:28,000 Speaker 8: growth that is not accelerating as much at the same 353 00:16:28,080 --> 00:16:30,880 Speaker 8: time as credit is tight. So you have this bifurcated 354 00:16:30,920 --> 00:16:34,680 Speaker 8: outlook for consumers where the lower end, younger generations, more 355 00:16:34,680 --> 00:16:38,560 Speaker 8: indebted consumers are struggling to make ends meet in this environment. 356 00:16:38,840 --> 00:16:39,960 Speaker 5: And to the point of bifurcation. 357 00:16:40,040 --> 00:16:42,120 Speaker 4: I wonder if we look at this data, if again, 358 00:16:42,440 --> 00:16:45,320 Speaker 4: maybe it doesn't accurately capture things if there's this housing confusion, 359 00:16:45,320 --> 00:16:48,080 Speaker 4: but also the bifurcation, if you're looking at the richest 360 00:16:48,080 --> 00:16:51,440 Speaker 4: people who essentially just buy assets, they buy assets they're 361 00:16:51,480 --> 00:16:54,360 Speaker 4: investing in this stock market, Does something like this give 362 00:16:54,440 --> 00:16:56,880 Speaker 4: us the full picture or is it really just capturing 363 00:16:56,920 --> 00:16:58,880 Speaker 4: what we know is already been under pressure. 364 00:16:59,000 --> 00:17:01,840 Speaker 7: Yeah, I mean the lower end of the income distribution 365 00:17:01,960 --> 00:17:03,720 Speaker 7: is now under stress in a way that they haven't 366 00:17:03,760 --> 00:17:07,159 Speaker 7: been since way before COVID. I mean, the fiscal stimulus, 367 00:17:07,320 --> 00:17:09,920 Speaker 7: the checks in the mail that we got through the 368 00:17:09,960 --> 00:17:13,800 Speaker 7: pandemic was a huge support to consumer spending, and especially 369 00:17:13,800 --> 00:17:15,600 Speaker 7: for that middle and lower part of the income distribution. 370 00:17:15,640 --> 00:17:17,800 Speaker 7: You're right at the top end of the distribution. You know, 371 00:17:18,160 --> 00:17:20,640 Speaker 7: cash flow is not really important. It's all about asset prices. 372 00:17:21,000 --> 00:17:24,240 Speaker 7: But the variations in consumer spending are driven by the 373 00:17:24,280 --> 00:17:27,440 Speaker 7: actions of the middle and lower and so if those 374 00:17:27,480 --> 00:17:29,399 Speaker 7: people are now seeing much slower income growth than this 375 00:17:29,480 --> 00:17:31,560 Speaker 7: saw last year, and they're beginning to worry a bit 376 00:17:31,560 --> 00:17:34,000 Speaker 7: about job security. You know, the New York Fed survey 377 00:17:34,000 --> 00:17:36,200 Speaker 7: asks people, do you think unemployment is going to go up? 378 00:17:36,359 --> 00:17:39,000 Speaker 7: Are you worrying about job security? And those measures have 379 00:17:39,080 --> 00:17:42,639 Speaker 7: both gone materially higher. So that's not a great combination. 380 00:17:42,760 --> 00:17:44,879 Speaker 7: You know, that's a combination that tends to make people 381 00:17:44,960 --> 00:17:48,400 Speaker 7: save more because of worry, but the saving more from 382 00:17:48,640 --> 00:17:52,240 Speaker 7: smaller cash flow, which means spending gets hit harder. So 383 00:17:52,800 --> 00:17:54,280 Speaker 7: this is you know, again we're not at the point 384 00:17:54,280 --> 00:17:57,000 Speaker 7: where everything's falling apart. That's not the story here, but 385 00:17:57,080 --> 00:17:58,760 Speaker 7: we are. I think we've got to get out of 386 00:17:58,760 --> 00:18:01,000 Speaker 7: the mindset that you know, it's it's been constant upside 387 00:18:01,040 --> 00:18:03,520 Speaker 7: surprises from the consumer, constant well not anymore. 388 00:18:04,119 --> 00:18:06,040 Speaker 6: When you look at the bifurcation, and I know you 389 00:18:06,080 --> 00:18:08,120 Speaker 6: pay atender to the surveys, do you see a real 390 00:18:08,160 --> 00:18:09,520 Speaker 6: hollowing out of the middle class. 391 00:18:10,280 --> 00:18:11,960 Speaker 7: I think that's probably going a little bit too far. 392 00:18:12,080 --> 00:18:14,080 Speaker 7: You know, we've seen very strong job growth in the 393 00:18:14,160 --> 00:18:17,320 Speaker 7: unemployment rates been very low, and you know, nothing is 394 00:18:17,440 --> 00:18:19,560 Speaker 7: nothing is better for you for the middle of the 395 00:18:19,640 --> 00:18:23,320 Speaker 7: income distribution than seeing sustained low unemployment and wage growth, 396 00:18:23,359 --> 00:18:25,800 Speaker 7: although it's slowing, is still pretty good. You know, we 397 00:18:25,880 --> 00:18:27,640 Speaker 7: had a long period after the crash in o Wait 398 00:18:27,640 --> 00:18:29,600 Speaker 7: where wage growth was less than three percent, and we're 399 00:18:29,640 --> 00:18:33,280 Speaker 7: way above that now. But you know, the price level 400 00:18:33,320 --> 00:18:37,880 Speaker 7: shock from the pandemic has scared people and made them 401 00:18:38,040 --> 00:18:40,040 Speaker 7: nervous and unhappy, and that's one of the reasons why 402 00:18:40,080 --> 00:18:44,520 Speaker 7: the administration's poll ratings are so low. But actually real 403 00:18:44,560 --> 00:18:47,640 Speaker 7: wage growth is at the moment is still positive, but 404 00:18:47,800 --> 00:18:50,200 Speaker 7: it's probably going to get weaker, and as it gets weaker, 405 00:18:50,359 --> 00:18:52,440 Speaker 7: it just makes people more cautious greg. 406 00:18:52,200 --> 00:18:54,040 Speaker 6: When you look at these kind of retail sales, do 407 00:18:54,040 --> 00:18:57,199 Speaker 6: you then expect potentially more companies to come out and 408 00:18:57,200 --> 00:18:58,879 Speaker 6: have to say, I guess we need to start slashing 409 00:18:58,880 --> 00:19:00,440 Speaker 6: more prices to make sure we can keep some of 410 00:19:00,440 --> 00:19:01,160 Speaker 6: that market share. 411 00:19:01,320 --> 00:19:03,560 Speaker 8: I think you're already seeing it. You're already seeing a 412 00:19:03,560 --> 00:19:05,760 Speaker 8: lot of companies think about incentives as a way to 413 00:19:05,800 --> 00:19:07,040 Speaker 8: drive consumers. 414 00:19:06,640 --> 00:19:07,320 Speaker 5: To spend more. 415 00:19:07,520 --> 00:19:09,440 Speaker 8: And as the end was pointing out, if you look 416 00:19:09,480 --> 00:19:12,080 Speaker 8: at the different income quintiles, you're seeing the bottom and 417 00:19:12,200 --> 00:19:14,800 Speaker 8: median income quintils being much more price sensitive. 418 00:19:15,040 --> 00:19:15,720 Speaker 5: What does that mean. 419 00:19:15,800 --> 00:19:18,320 Speaker 8: It means that they have to get greater focus on 420 00:19:18,440 --> 00:19:21,720 Speaker 8: how to drive consumers to spend, but you have to 421 00:19:21,760 --> 00:19:24,159 Speaker 8: do that at an affordable price, and in order to 422 00:19:24,200 --> 00:19:26,760 Speaker 8: do that, you're probably going to need some incentives. What 423 00:19:26,800 --> 00:19:30,080 Speaker 8: that means for the overall economy is slower consumer spending 424 00:19:30,400 --> 00:19:35,040 Speaker 8: and ongoing disinflation because those price cuts in certain sectors 425 00:19:35,200 --> 00:19:37,960 Speaker 8: are going to lead to further disinflation. This is actually 426 00:19:38,000 --> 00:19:40,880 Speaker 8: a positive story. It's a positive story where the Fed 427 00:19:40,960 --> 00:19:44,800 Speaker 8: has to be careful to recalibrate monetary policy and adjust 428 00:19:45,040 --> 00:19:47,879 Speaker 8: to that environment and not be so backward looking because 429 00:19:47,920 --> 00:19:50,760 Speaker 8: backward looking can be very dangerous in an environment where 430 00:19:50,800 --> 00:19:52,480 Speaker 8: you have a lot of noise in the data and 431 00:19:52,560 --> 00:19:55,200 Speaker 8: downward derisions a month later that show a different picture 432 00:19:55,240 --> 00:19:56,320 Speaker 8: when it comes to retail. 433 00:19:56,080 --> 00:19:59,480 Speaker 1: Sales well, and to your point about this isn't necessarily 434 00:19:59,520 --> 00:20:01,479 Speaker 1: a negative story. This has been one of the key 435 00:20:01,600 --> 00:20:04,800 Speaker 1: questions for equity markets. Is bad news good news at 436 00:20:04,800 --> 00:20:07,679 Speaker 1: a time where disinflation can potentially be positive. You can 437 00:20:07,720 --> 00:20:09,879 Speaker 1: see it this morning, taggling around how to interpret this. 438 00:20:10,000 --> 00:20:12,719 Speaker 1: Basically lower at the moment of future is on the 439 00:20:12,840 --> 00:20:15,000 Speaker 1: S and P although they were higher, you could see 440 00:20:15,040 --> 00:20:18,360 Speaker 1: yields markedly lower across the board. This from Drew Mattis 441 00:20:18,520 --> 00:20:21,159 Speaker 1: over at Mutlife, and I think it really crystallizes the 442 00:20:21,160 --> 00:20:21,720 Speaker 1: fears that a. 443 00:20:21,640 --> 00:20:22,280 Speaker 5: Lot of people have. 444 00:20:22,600 --> 00:20:24,640 Speaker 1: He said, it may seems to have been the break 445 00:20:24,720 --> 00:20:28,560 Speaker 1: months lower sentiment, lower retail, higher claims. The question is 446 00:20:28,920 --> 00:20:31,840 Speaker 1: whether this is going to spiral downward and if so, 447 00:20:32,359 --> 00:20:35,960 Speaker 1: when does the FED recognize it? Ian given that view 448 00:20:35,960 --> 00:20:38,600 Speaker 1: that some people have, and I believe you are sympathetic 449 00:20:38,640 --> 00:20:42,320 Speaker 1: to it, what is the chance of a FED error 450 00:20:42,440 --> 00:20:44,920 Speaker 1: at a time where the FED is looking for December 451 00:20:45,200 --> 00:20:46,200 Speaker 1: for a federate cut. 452 00:20:46,480 --> 00:20:49,000 Speaker 7: Oh, the chance of a mistake is going up for sure. 453 00:20:49,840 --> 00:20:52,840 Speaker 7: You know, monetary policy works as very very long lags. 454 00:20:53,080 --> 00:20:55,119 Speaker 7: I can't stress enough how long it takes for the 455 00:20:55,119 --> 00:20:57,720 Speaker 7: economy to respond to whatever the Fed does. It's you know, 456 00:20:57,760 --> 00:21:00,400 Speaker 7: the economy is now clearly softening, but it's two years 457 00:21:00,400 --> 00:21:03,560 Speaker 7: since they started raising rates. Two years and that means 458 00:21:03,560 --> 00:21:06,600 Speaker 7: that if they start cutting rates tomorrow, it will be 459 00:21:06,800 --> 00:21:08,960 Speaker 7: well into twenty five or even twenty six before we 460 00:21:09,000 --> 00:21:12,719 Speaker 7: start to see the upswing triggered by that easing, And 461 00:21:12,760 --> 00:21:15,320 Speaker 7: so between now and then, potentially we could be in 462 00:21:15,359 --> 00:21:18,320 Speaker 7: for quite a long period of sluggish growth. I'm not, 463 00:21:18,800 --> 00:21:22,040 Speaker 7: at this point not terrified of US downward spiral disaster, 464 00:21:22,119 --> 00:21:24,840 Speaker 7: because the private sector's finances are in much better shape 465 00:21:24,880 --> 00:21:27,159 Speaker 7: than you normally have at the start of recession. But 466 00:21:27,240 --> 00:21:29,440 Speaker 7: I can see the risk that the FED presides over 467 00:21:29,800 --> 00:21:32,440 Speaker 7: quite a long period of sluggish growth, which is probably 468 00:21:32,520 --> 00:21:35,159 Speaker 7: unnecessary to get inflation out of the system, which is 469 00:21:35,160 --> 00:21:37,199 Speaker 7: why I think sometime next year they'll end up with 470 00:21:37,240 --> 00:21:41,040 Speaker 7: inflation below the target and monetary policy getting much easier, 471 00:21:41,320 --> 00:21:43,320 Speaker 7: which so the equity market is kind of toggling between 472 00:21:43,320 --> 00:21:45,760 Speaker 7: this bad news is good news because lower rates, and 473 00:21:45,800 --> 00:21:48,639 Speaker 7: also bad news is bad news because low margins, So 474 00:21:48,680 --> 00:21:50,280 Speaker 7: there's going to be a real kind of push and 475 00:21:50,320 --> 00:21:52,600 Speaker 7: pull in stocks, I think over the next few months, 476 00:21:52,600 --> 00:21:54,760 Speaker 7: where you know that the rate people are just buy 477 00:21:54,840 --> 00:21:57,800 Speaker 7: because valuations and the margin guys are saying, well, hang 478 00:21:57,840 --> 00:22:00,560 Speaker 7: on a minute. This is a loss of volumes margin 479 00:22:00,600 --> 00:22:01,680 Speaker 7: compression at the same time. 480 00:22:01,760 --> 00:22:04,000 Speaker 5: So if you get a bit sticky greg. 481 00:22:03,880 --> 00:22:06,719 Speaker 8: Final word, I'll disagree a little bit with Ied for 482 00:22:06,760 --> 00:22:09,960 Speaker 8: the first time, but I think there is a risk 483 00:22:10,119 --> 00:22:13,119 Speaker 8: that the economy actually worsens more because of the self 484 00:22:13,160 --> 00:22:16,600 Speaker 8: reflective interdependence between the FED and financial markets. You have 485 00:22:16,640 --> 00:22:20,040 Speaker 8: this unhealthy environment where the financial markets are trying to 486 00:22:20,080 --> 00:22:21,960 Speaker 8: price what the FED is going to do based on 487 00:22:22,080 --> 00:22:24,480 Speaker 8: data which is backward looking, and you have the FED 488 00:22:24,720 --> 00:22:27,920 Speaker 8: that's essentially looking at financial conditions to to try to 489 00:22:28,040 --> 00:22:31,239 Speaker 8: evaluate how tight it's Vontary palsy is if you end 490 00:22:31,320 --> 00:22:33,720 Speaker 8: up in an environment where there's a sudden pivot at 491 00:22:33,720 --> 00:22:37,919 Speaker 8: the FED because of disappointing economic data that's backward looking, 492 00:22:38,320 --> 00:22:41,480 Speaker 8: that could catalyze into something that's more pronounced in terms 493 00:22:41,480 --> 00:22:44,800 Speaker 8: of financial markets seeing this as very bad news and 494 00:22:44,880 --> 00:22:47,320 Speaker 8: thinking that the FED is seeing a recession down the road, 495 00:22:47,440 --> 00:22:50,200 Speaker 8: and you could have this negative feedback loop that weighs 496 00:22:50,240 --> 00:22:52,639 Speaker 8: on the economy, that's a potential downside risk via the 497 00:22:52,640 --> 00:22:54,040 Speaker 8: financial markets channel. 498 00:22:53,800 --> 00:22:56,280 Speaker 1: The game theory of what we see with the markets 499 00:22:56,280 --> 00:22:59,360 Speaker 1: and the feder Reserve. Greg Ian, both of you, thank 500 00:22:59,400 --> 00:23:01,720 Speaker 1: you so much for with us Ian Shepperdson of Pantheon 501 00:23:01,840 --> 00:23:03,600 Speaker 1: and Greg Daco of EY. 502 00:23:04,520 --> 00:23:08,080 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 503 00:23:08,119 --> 00:23:11,440 Speaker 2: in markets, economics, and geopolitics. You can watch the show 504 00:23:11,480 --> 00:23:14,439 Speaker 2: live on Bloomberg TV weekday mornings from six am to 505 00:23:14,560 --> 00:23:18,320 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 506 00:23:18,480 --> 00:23:20,680 Speaker 2: or anywhere else you listen, and as always, on the 507 00:23:20,720 --> 00:23:23,160 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.