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Bloomberg

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This is the Bloomberg Surveillance Podcast.

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I'm Jonathan Ferrow, along with Lisa Bromwitz

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for insight from the best in markets, economics,

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listen, and as always on the Bloomberg Terminal

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and the Bloomberg Business app. Mohammed's

0:36

with us around the table. Mhammeed caa mornet here. Good morning,

0:38

John, it's going to see I won't ask you if you can get an auto loan

0:41

from Bank for America. I will talk to you about what we've

0:43

been writing about, though extensively, and I think the rest

0:45

of the street is catching on. I think the rest

0:47

of the media is catching on as well. The amount of times

0:49

we've all read articles over the last few days

0:51

talking about US exceptionalism.

0:53

This is something you've been touching on. What are the sources

0:55

of it, Muhammad? And how durable do you think they are?

0:58

I think you have two sets of sources that speak

1:00

to us exceptionalism. One is the inherent

1:02

attributes of the US. It is more flexible,

1:05

it is benefiting from the

1:08

higher labor force participation, it is

1:10

more entrepreneurial. And then there's a second

1:12

element, which is policy. It's been running

1:14

a very very loose fiscal policy.

1:17

We're running deficits of seven percent when unemployment

1:20

is under four percent. That is unthinkable,

1:23

but it's happening. But also importantly,

1:25

the US is investing in the drivers of tomorrow's

1:28

growth and it's way ahead of

1:30

other countries in that. And I think if you put all that together,

1:32

you get this incredible engine

1:36

that drives exceptionalism.

1:37

How sustainable to youth in the second element is

1:39

policy.

1:41

So I think it is more sustainable than

1:43

people realize, but there is a limit

1:45

to it. Look, this can be derailed

1:48

by one of two things. Oil at one ten

1:51

or a FED that's too tight.

1:53

Those are these two things. And if

1:55

they come together, which is a possibility

1:57

the geopoliticist gets worse, then you

2:00

could do ail US growth.

2:01

You wrote about this just in terms of the pressures

2:04

of what's going on with the Middle East and the potential

2:06

increasing commodity prices on the heels of that.

2:09

One kind of theme we've heard is that Europe will

2:11

be hit much harder than the US. You're

2:13

saying, maybe so, but it doesn't

2:15

mean that the US is immune. Can you elaborate?

2:18

So?

2:18

I think the US dominates in relative space. It

2:21

dominates almost regardless of what the global

2:23

scenario is. But in

2:26

absolute space, the US has

2:28

dominated so far, and for the

2:30

US to continue to dominate, we need

2:32

to avoid really high

2:34

energy prices, and we need to avoid another

2:36

policy mistake, so it will dominate

2:39

in relative space for a very long time.

2:41

This goes to the question that ECB board

2:43

members were talking about, which is that they might not

2:45

be able to cut rates because of geopolitics.

2:49

Do you think that this sort of one two punch

2:51

is looking more likely for the Federal Reserve

2:54

as well, that they will keep rates higher for longer

2:56

in response to higher commodity prices,

2:59

even at a time of a potential shock

3:01

that could curtail growth.

3:03

So, Lisa, this is a great question because I think

3:05

most people, not everybody, most

3:07

people on your show have now agreed that

3:09

the last mile of inflation is going to be complicated,

3:12

that inflation's most sticky. Where there's

3:14

massive disagreement is what

3:16

the FED should do and what the FED

3:18

will do. Right, there's massive

3:20

disagreement that those who think the FED should

3:23

hike. You had the UBS today showing

3:25

six percent that those

3:27

who think like me, the FED should maintain

3:30

its course and cut twice this

3:32

year by twenty five basis points. Now,

3:34

why are we all over the place. It's because

3:36

we disagree on what

3:38

our star is. We disagree on what the white

3:41

inflation target is, and therefore

3:43

we disagree on how the FED can best meet

3:45

as dual mandate. So this is

3:47

where it's going to play out over the next year.

3:51

In order to predict the FED. If you think that we

3:53

remain data dependent, which

3:55

they are today because they got so

3:57

embarrassed by what happened twenty twenty one,

4:00

then the FED will not cut. If, however,

4:02

like me, hope that they will

4:04

go from excessive data dependency

4:07

to also having a macro framework in

4:09

their head and looking forward, then they would

4:11

cut. And that's what we're going to see play

4:13

out in the next few months.

4:15

But if they are data dependent and you see inflation,

4:18

we had hot retail sales yesterday, and they

4:20

do, and they do start to get

4:22

more concerned about inflation. Is it not

4:24

just they're not going to cut like the ubs?

4:27

Note, do you think they could hike?

4:29

Look inflation. If inflation gets much worse,

4:31

they could hike. But I think if they do hike,

4:34

we're going to have a regional banking crisis.

4:37

We're going to have all sorts of damage

4:40

in the marketplace. And I think that is

4:42

at the back of the head. So I think the likelihood

4:44

of them hiking is low. Is

4:47

it zero?

4:47

No?

4:48

They could.

4:48

What's the difference between them hiking twenty five basis

4:50

points and just hold them for the rest of the year. How

4:53

big is twenty five basis points?

4:55

The minute that hack twenty five basis points, they open

4:57

the way to hiking more. That's

5:00

the difference we're going to see

5:02

today. Chair Pal is going

5:04

to try, I think, to do exactly what he did

5:07

earlier, which is maintained maximum

5:09

optionality. On the one hand, I

5:11

think he's going to basically say the inflation story

5:14

has not fundamentally changed, and he's going

5:16

to probably use the word fundamentally. On the

5:18

other hand, he's going to say, well, we

5:20

need more evidence to know what we're doing, and

5:22

he's going to keep his options open, and that's

5:25

what he's going to keep doing for a while.

5:26

Is it too early to move away from bumps in the road? Three

5:29

bumps in the road.

5:30

I would have moved away a long time ago,

5:33

but then

5:35

probably will maintain the bumps in the road.

5:38

You talk about all the disagreements, and I'm still

5:40

sitting here thinking about what fe

5:43

Williams, New York Fetcher william said

5:46

when he said, you know, we're not really thinking about

5:48

the target. We're just kind of playing it by year and taking

5:50

the data.

5:51

And you talked about how the biggest debate.

5:53

Among you and your colleagues really is where

5:55

is the endpoint? It basically is the destination

5:57

is the biggest issue. What gives you confidence

6:00

in your goal of the destination that

6:02

makes you think that they should just sort of adopt

6:04

some kind of belief and go with it rather

6:07

than just kind of live in the marass

6:09

that we're living in of just complete confusion.

6:11

So confidence, I don't have, hope I have Okay,

6:14

I mean there's a definitely confidence and hope. You know,

6:16

they do have a deal mandate. They do understand

6:18

how exceptional US economic performance

6:20

has been. That proud of it,

6:23

it's incredible. I mean, you opened up

6:25

with how depressing it is that

6:27

we've had two days of massive losses.

6:29

If I had come here in December

6:31

and said to you all the market is going

6:33

to reprice fed cuts from

6:36

seven to under two and

6:38

the S and P would be up six percent in

6:41

a prop what would you have said to me,

6:43

you're nuts. Were still up six percent

6:46

on the SNP, right, we were up ten

6:48

percent in the first quarter. So

6:50

to go back to your question, I don't have confidence.

6:52

I have hope. That's what I have. Hope

6:55

that they'll understand that they need to get

6:57

away from this excessive data dependence. They

7:00

need to look forward, and they.

7:02

Need to have a view.

7:03

You know, they're being pressed hard on tell

7:06

us what you view with and

7:08

at some point they're gonna have to live on that now. You

7:10

know. President Williams

7:12

has said, you know, think about the target. You're

7:14

going to hear this term longer term. Come

7:17

in every time to talk about the inflation target. Yes,

7:19

it's our longer term inflation target, yeah,

7:21

right, or medium term inflation target.

7:23

And that's the way they're going to do it. They're not going to come out

7:26

with some massive statement. They're just going to start

7:28

offer skating what exactly is meant

7:30

by a target?

7:30

Can you imagine if Chairman Pound came out this afternoon he said

7:33

I don't have confidence, I have hope. Can

7:35

you imagine how that would go down with financial markets?

7:37

You know what people would clap, They would say, finally,

7:39

you're telling us of.

7:40

Days type stuff. You know, I don't have confidence,

7:43

I have hope.

7:53

I'm really close to say that, Johning us. Now around the table,

7:55

it's David Hart, the CEO of PGM.

7:57

David Camonicsy, sir, good morning, it's supposed to be with

7:59

you. Thank you very much for being with us. I want to pick up

8:01

on Shinati's comments at the end that the prospective

8:04

money coming out of money market funds and Mike

8:06

writing gas sway, are you beginning to see that

8:08

trend develop?

8:09

You know, Jath, we are seeing that.

8:11

We've seen that really for the last six months,

8:13

but it's been in small, small pieces.

8:15

But I do think it's beginning to pick up pick

8:17

up steam.

8:18

And some of the reasons are obvious. You

8:21

know.

8:21

Certainly, I'm at a higher level of

8:23

interest rates relative to money market funds,

8:26

and as we begin to see rates peak

8:28

and then decline duration begins

8:30

to look a little bit more more attractive. But

8:32

there are two other things that are going on which are at

8:35

least as important. One is that the big

8:37

pension funds with higher rates are actually

8:39

better funded and so they actually

8:42

are using this as a chance to de risk, and

8:44

that means for them they are moving money

8:46

into fixed income.

8:47

And the second is.

8:48

That you know, we have the continued

8:51

demographic trends going on, not just

8:53

in this country but around the world, and retirees

8:56

need income. So we are in the process

8:59

now of this huge shift from accumulation

9:01

products to decumulation

9:03

and income products, and those need

9:05

fixed income. So if you take the kind of

9:08

short term shift, you add to them two

9:10

structural shifts. We think over the

9:12

next three years, we really are going to see

9:14

bonds are back.

9:15

This sounds like a new regiame. And I'm going to give you obtain

9:17

a bit of a shouts out because you're a modest man.

9:20

My Cullings, Greg paid is rubbitt SIP just absolutely

9:22

phenomenal pre pandemic really

9:24

defining that bond market regime of

9:27

yester year. Can you talk to me about how different

9:29

this regime is going to be compared to that.

9:31

We think it will be different, and you're

9:33

right, they were right on the lower for longer,

9:35

for quite a long time in that, and then more recently

9:38

our call has actually been that we're going to

9:40

be higher. So if you go back

9:42

six months, we were very early to the

9:45

hey, we're looking at kind of two cuts

9:48

for twenty four when the

9:50

market was pricing in seven, and

9:52

we held with that view, and

9:55

the market's.

9:55

Kind of come back to us at this point.

9:57

So we pride ourselves on taking I

9:59

think, considered non

10:02

consensus views that are long

10:04

term in nature rather than simply trading

10:06

views. And I think that we've made a

10:08

very good job on those. And

10:11

I will say that in order to do that, you

10:13

need a culture that supports people to

10:16

take those non consensus views even

10:18

during times when.

10:19

They don't look so ripe.

10:20

And many organizations have a hard time

10:22

doing that, and we're proud of our culture to do it.

10:25

To rip up the script just quickly, because I have

10:27

got Tom Keene's shadow over me and all of

10:29

these banking earnings that come out, with compensation

10:31

expenses coming up, is it getting harder to

10:34

recruit and keep that kind of talent?

10:37

No question, It is.

10:38

I mean, if you look just

10:41

over the last twenty years, you would

10:43

say that many of the functions

10:45

and things that used to be done in the investment

10:47

banks are now being done on the buy side.

10:49

I mean, I have more than one hundred and thirty credit

10:52

analysts.

10:52

You would never have seen that before.

10:55

All of that would have been done by

10:57

Golden Sachs and Morgan Stanley and we would have bought

10:59

research from them.

11:01

So the actual value.

11:02

Chain continues to move from

11:05

the cell side to the buyside. And

11:07

that's a trend that I don't think is

11:09

going to change, and that of course puts a

11:11

lot of pressure on those of us on the

11:13

buy side because we do need

11:16

to move our compensation levels

11:18

up in step with that. So

11:20

the war for talent is very real and

11:23

very practical.

11:23

For us day to day.

11:24

So artificial intelligence, how do you

11:26

use that? And I'm really I'm diverging here. I was going to talk

11:28

about bos being back, but this is fascinating.

11:30

Today talking about Greg paid his bonus.

11:32

Okay, well you can go there next and talk

11:34

about the winebar. But I am curious about this

11:37

idea of how you make things more

11:39

efficient to reduce costs while continuing

11:42

to prioritize this talent. I mean, how

11:44

do you see that playing out or do you think that some of the

11:46

gains of productivity are overstated

11:49

and that it really just comes down to talent and people

11:51

who can do the job best.

11:53

So I think that we are in the midst of

11:56

a game changer on technology in

11:58

asset management. Over the last decade,

12:01

technology has mostly been about can we

12:03

automate things? Can we get more efficient

12:05

at things? And so it has been a bit

12:07

of a cost play. That's

12:10

not where the game is today. Technology

12:12

now is allowing us to move data

12:15

to the cloud and then to do things

12:17

with artificial intelligence that we never could

12:19

do before, and so it now is

12:21

actually being used by our investors,

12:23

it's actually being used by the frontline to

12:25

make decisions. That's a very

12:27

different use of technology that it was before, and I

12:30

think that's very exciting. But it means that

12:32

we are needing to significantly up our game

12:34

on the use of technology and making

12:36

sure that we're employing some of these latest

12:39

uses of it in our actual investment

12:41

process, as well as trying to get more

12:43

efficient in some of the back office functions.

12:46

But that's different for the industry.

12:48

So you're saying it's making you more efficient, but

12:50

not that it means you need a leaner team.

12:53

It means that the quality of jobs that

12:55

we have will actually be better because

12:57

we will take a bunch of things that are kind

12:59

of fairly wrote and we'll be able

13:01

to do that much more efficiently with

13:03

technology. And then we will be able

13:06

to augment our portfolio managers

13:08

with technology so that they're actually making

13:10

better investment decisions. And that's what they want

13:13

to focus on anyway. So the more I can

13:15

focus them on the higher value topics,

13:18

the better and happier they are

13:20

through the use of technology.

13:21

When you look at AI and inflation, well

13:23

let's come back to the US.

13:25

We're coming back to.

13:26

Sorry, that's my view, isn't it an outlook

13:29

for the economy is weak inflation? But

13:32

is that the rest of the economy or also

13:34

as well in the United States where we see continuosly hot

13:36

day.

13:37

So the big story that I think

13:39

doesn't really get reported enough is that

13:41

the world has never been, at

13:43

least in the last couple of years, more divergent

13:46

in their views of growth. So spending

13:48

time in Europe, I would

13:50

say, actually, the UK is in a technical recession

13:53

right now.

13:53

You spend time in.

13:54

Germany, boy, growth is really

13:56

hard to come by, and it's not looking so terrific

13:59

and continues to be a worry, but

14:01

it's come down a lot and is related to mostly

14:03

to energy prices. You move to the

14:05

US and actually growth is higher

14:07

than most people thought. Their labor market

14:10

is in excellent shape, and

14:12

growth appears and productivity

14:14

appears to be better.

14:16

Inflation is higher and rates are higher.

14:18

I just spent last week in Japan,

14:21

and you know, it's fascinating.

14:24

After literally thirty

14:26

years of trying to get inflation to

14:28

go again, it's a beautiful

14:30

spring week. The cherry blossoms were out,

14:32

and there is a spring in the Japanese stout.

14:35

They finally have inflation coming

14:37

back, They have productivity and members that look

14:39

better, They have some growth, and so

14:42

the stock market is an all time high and you feel

14:44

an optimism in Japan.

14:46

We saw the numbers come out of China.

14:48

So China continues to

14:50

push on manufacturing in order to get.

14:52

Their economy going.

14:54

I think all of us wish that they had

14:56

the tools to get domestic

14:58

personal consumption going, because that's

15:00

really the rebalancing that they need.

15:02

In their economy.

15:03

The way they're going right now is just going to

15:06

flood the world with cheaper manufacturing

15:08

goods, which is, you know, maybe going to export

15:11

deflation back to kind.

15:12

Of five years ago.

15:14

But it's not the balancing that we would

15:16

hope. And I think that if they could get their domestic

15:19

consumption going, it would be good for the Chinese

15:21

people, good for the Chinese economy, and better.

15:24

For the world economy.

15:25

So the reason we come to weakflation to come to your

15:27

question is that the world is very

15:29

different. But when you put all of that together,

15:31

growth is going too slow from

15:33

what it has been, and we are

15:36

going to have higher inflation we believe

15:38

for longer and higher rates, and that's

15:40

where you get the weak flation piece of it.

15:42

And it's very different from stagflation, where

15:44

obviously the labor market is in bad shape.

15:46

We think the labor market is pretty strong.

15:48

There's a ton to impact that. I want to unpack

15:50

the China piece of it just a little bit, focus on that.

15:53

That growth model at the moment is controversial.

15:55

It's getting old of the wrong kind of attention from

15:58

policymakers worldwide, particularly here in the

16:00

United States, and there is talk of maybe even

16:02

more policies going against China from the United

16:04

States. Secretary Evan's been talking about that over the last

16:07

week. Does that make it harder for you to run a global

16:09

business? Is it more difficult now than it used

16:11

to be?

16:12

Yes, it certainly is.

16:13

And I think many of us are headed down to

16:15

the IMF meetings this week, and I think that one of the

16:17

big topics is going to be what

16:20

are the impacts of the new

16:22

Chinese economy and what will the US

16:24

administration.

16:25

Do in response to that.

16:27

I will say, having spent a week

16:29

in Japan, that the country

16:31

that is the number one beneficiary

16:34

of the tension between the US

16:36

and China is Japan. When I was

16:38

there, there were three companies launching

16:40

new chip manufacturing centers there,

16:42

There was companies that wanted to invest more

16:45

in Japan. And so Japan has actually

16:47

taken on a role in Europe, in

16:49

Asia and in a Pan Asia trade

16:52

book that they didn't have before. And

16:54

the other thing that's happened is that the security

16:56

alliances have come together, I think faster

16:59

than any of us would have thought.

17:00

When I spend time with.

17:01

Folks in both the diplomatic

17:03

and security world. There the coming

17:06

together of Japan, of South

17:08

Korea, now of the Philippines

17:10

and Australia is creating a stronger.

17:12

Alliance than we had before.

17:14

And so you know, these kinds of

17:16

reverse powerful impacts

17:18

that we have are hard to predict, but they

17:20

do change those supply changes quite a lot.

17:22

You've mentioned Japan a few times. He visited

17:24

that it was not the business. Then what are you up

17:26

to in Japan?

17:27

So we are one of the largest foreign asset managers

17:30

in Japan. We absolutely

17:33

believe that it's a critical country.

17:36

Obviously, if you just look at where is the

17:38

money around the world, Japan remains

17:40

one of the wealthiest and highest savings places,

17:42

so there's a lot of money to manage.

17:45

It's that money coming home.

17:46

So the money is coming home to

17:48

some extent, but also foreign money, as I mentioned,

17:51

is going in both portfolio flows and

17:53

FDI, which again is a fairly

17:56

new storage.

17:57

It's a massive change.

18:08

Apollos Torston slock with this to say, the

18:11

strong tail wind from easy financial conditions

18:13

continues to boost inflation and growth, including

18:15

consumer spending. In March, given the ongoing

18:18

re acceleration in the economy, the FED will

18:20

not cut interest rates in twenty twenty

18:22

four, Apollos Torston slock Is with this around

18:24

of table, Torston, it's been quite a cool and I

18:26

imagine you're feeling better about that called over the last

18:28

week or so well.

18:29

I think that what is happening is that when

18:31

they're fit pivoted, after having said for two

18:34

years rates are going up, up, up, now

18:36

they're actually saying rates are going down. And they're still saying

18:38

rates are going down when that change came

18:40

at the November one FMC meeting. Since then,

18:43

there's some peers up ten trillion dollars. In

18:45

other words, to tailwind to wealth

18:48

in the household sector, the tailwind to wealth for

18:50

corporates, and therefore the tilwind to consumption

18:52

to capis is really not surprising that non

18:54

found payer rules for the last three months has been strong. It's

18:56

not surprising retails has has been strong, and

18:58

therefore it's also not surprise that inflation

19:01

has been strong, and I think that deal will continue

19:03

for the next several quarters.

19:04

You're not lonely joining you, I think sock

19:06

Gen and Stephen Gallagher in the last couple of days now

19:08

saying no cuts. In twenty four even mattless

19:10

Eli, a Deutsche Bank saying one cut December.

19:13

Likewise from Mike Gapano for a Bank for America.

19:15

What's interesting about the way you frame it is

19:17

you put a lot of this on looser, easy

19:20

financial conditions. When you speak to the

19:22

Fed, they say financial conditions

19:25

are tight, not loose, even

19:27

with stocks close to all time highs and credit spreads

19:29

really tight. So what are you saying that then

19:32

are So.

19:32

That's really important because that discussion splits

19:35

into two things. Namely, if you look only at

19:37

rates and the level of the FIT funds rate at five and

19:39

a half, that is certainly above most

19:41

estimates of our star, meaning the long run equilibrium

19:44

interest rate for the economy, which normally the

19:46

FIT would say is two and a half. So looking at rates

19:49

on their own in your old school is

19:51

element models in the economics literature,

19:53

you will look at that and say, hey, you have

19:56

that exactly.

19:57

Monetary policy is tight.

19:58

But what has happened is that has been

20:00

completely neutralized and offset by

20:02

the rise in the dark market, the rally in

20:05

IG in high yield and loans, the

20:07

incredibly increase we've seen issuance in ITG

20:09

also in high yield and likewise, IPO

20:11

and m and a activity coming back. So you have on

20:13

the one hand, yes, it's true that your old

20:16

school textbook model tells you the rates

20:18

are higher than where they will be in the long run.

20:20

Namely, five and a half is bigger than two and a half, so

20:22

that seal shoe policy is tight. But that's completely

20:24

being more than offset by a dramatic

20:27

tailwind.

20:27

You could call it a sugar.

20:28

High coming from the easy and financial

20:31

conditions, lifting the wealth component

20:33

for households, that is boosting consumption.

20:36

Therefore you see increases of course in travel, restaurants,

20:39

airplanes, everything when you come to hotels,

20:41

concerts, sporting events as a huge taill with consumer

20:44

services, and that's why super coinflation

20:46

is accelerating so quickly at the moment.

20:48

Essentially, are you saying that it was a policy error

20:50

for Fetcher Reserve chair Powell

20:53

to talk about in December the potential for cutting

20:55

rates.

20:56

See, I don't think this was the intention. I think

20:58

the intention was to take the text book

21:00

out and say, well, when we run Tailor

21:02

rolls and Phillips curve, we get that it

21:04

only is rates as John is saying, that matters, and

21:07

they did not have the intention of lifting financial

21:09

conditions and boosting the stock market as much as they remember

21:11

this. And P is up twenty five percent since

21:13

November the first, and the market cap of this in P is

21:16

about forty four trillion, so that brings us roughly around

21:18

ten eleven trillion additional increase

21:20

in wealth for the household sector. I don't think this

21:23

was the intention to generate this wealth increase.

21:25

It just happens to be what I've described as sugar

21:27

high that is now lifting for several quarters

21:29

because we can't have this twenty five twenty

21:32

five percent, but for several quarters we'll get that tailwind

21:34

where consumers will say, well, my balance,

21:37

it looks a lot better, probably better than it's done, meaning

21:39

for the household sector, than it's done for a

21:41

long long time. And as a result of that, consumption

21:44

is getting a huge tailwind. As the data yesterday was

21:46

showing.

21:46

This race is a question.

21:47

Of what happens if the market starts

21:50

to completely agree with you and make in

21:52

no rate cuts this year. Does that curtail

21:54

some of the sugar high. We're already starting to

21:56

see some people on Wall Street wonder, okay,

21:58

are we going to see yield where they are bite

22:01

into equity valuation slow some of

22:03

the capital markets activity.

22:04

Do you believe that too? Absolutely?

22:06

So. I do think that the rate hikes that

22:08

we have had, and the five and a half higher than two and

22:10

a half, it is already biting hot on

22:13

highly levered consumer balance sheets, highly

22:15

levered corporate balance sheets, and also

22:17

hard on banks, in particularly on regional banks.

22:19

So the consequence of this is that we still have the

22:22

negative effects of the transmission mechanism.

22:24

Margarry policy is still working, it's just

22:26

only working on those balances that have a lot of

22:28

debt. And therefore we are working through that

22:30

process. And as that sugar high starts

22:32

to fade, if the stock market doesn't continue to go

22:34

up, you will eventually get that effect to begin to dominate,

22:37

and that's probably what we get in twenty twenty

22:39

five, when you ultimately will then get the

22:41

risk of a harder landing. But for now, the

22:43

economy is certainly riding the wave of the

22:45

increase in the stock market and crypture prices

22:47

and home prices and cash flows in fixed

22:49

income because of all in yields being so high,

22:52

being probably higher than they've been for decades,

22:54

that's very supportive for the household balance sheet.

22:56

So just to mind. This really confusing. If we start to believe

22:58

there will be no cuts, that will be cut.

23:00

Well, eventually, the FED has the goal

23:02

of getting inflation back to two percent, and inflation

23:04

is not a two percent If you look at the three month annualized

23:07

change in super COO, inflation is eight percent.

23:10

So the trend in particularly in SUPERCOT is really

23:12

not the Fed's friend here. So the worry is

23:14

it might take a lot longer to get down to two

23:16

percent, so that fight against inflation is

23:19

not over. And the consequence of that is that we may get

23:21

the market environment for twenty twenty two to

23:23

come back, because in twenty twenty two

23:25

we had stocks down, rates higher, and

23:27

obviously this was not good for markets and for your

23:29

sixty to forty portfolio, and that environment is at risk

23:32

of coming back if we're not done fighting.

23:34

Inflation first, and what about hikes.

23:36

People are actually starting to talk about this.

23:38

I think, and this is of course in your world. I

23:40

think that the ligra of that is still relatively

23:43

low, because there's just so many

23:45

complications in doing that and in saying well,

23:47

we were wrong and now rates are not going down, our rates

23:49

are going up again. There's also some challenges

23:52

with the basic effas of inflation, some more technical

23:54

things about we got to go with it in July,

23:56

otherwise it'll be in December or next year. Because

23:58

we have the basic fake there's very supportive for

24:00

inflation for the second half of this year. So

24:02

it's also going to be quite challenging for the FIT

24:05

to get all that in place in time to

24:07

turn things around and say maybe we need another high go too.

24:09

I think they were rather from a transmission making

24:11

this in perspective key brates higher for a little bit longer,

24:13

maybe one two quarters, and then achieve

24:16

their goal of getting the economy and inflation to slow down.

24:18

So you don't think if we get too soft prints on inflation,

24:21

we end up with a cut in July.

24:22

See, but I don't see whether those soft friends

24:25

should be coming from retails yes yesterday, I mean super

24:27

core inflation and shelter time inflation is

24:29

showing signs of coming down much slower than

24:31

what anyone expected. And if I look at my Bloomberg

24:34

screen at ism price is paid, you also

24:36

get that that's also beginning to accelerate. So even

24:38

goods inflation, which went through the roller coaster of

24:40

being no problem, a big problem and

24:42

no problem again. And now goods inflation,

24:44

including with energy and oil, you have that

24:47

good inflation is at risk of also providing some

24:49

lift to inflation.

24:50

To be honest toast them, was a reaction function question, not

24:52

a forecast question. So let's just assume

24:54

we do get that data. Do two soft

24:56

prints lead to a cut given how much they've

24:58

seemed to want to cut still at the Federal

25:00

Reserve.

25:00

So let's turn that around and say, if they do absolutely

25:03

want to card in June or July, we will need some

25:05

very very dramatic slow down in inflation in

25:07

the next several months.

25:08

Absolutely, Okay, Tilston, this was great,

25:10

just really really smart. Tolston's slock of Apollo feeling

25:12

much much better about its call for no interest rate

25:15

cuts in twenty twenty four. This

25:17

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Amp.