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0:52

how can the u s be in recession

0:55

when labor market is expanding so rapidly

0:58

hey everyone welcome to the daily briefings ourselves

1:00

from clearbridge is here that today to help break down

1:02

the us payroll reports and it means

1:04

for the said and interest hygiene

1:06

yeah

1:09

for jobs friday and boy

1:12

this was a this is a bit of a soccer the us

1:14

economy added five hundred twenty eight thousand

1:16

jobs in july unemployment down

1:18

to three point five percent you

1:20

know what is that what do you think these numbers telling

1:22

us

1:24

i think this number is telling us what we've seen throughout

1:26

the course of the first half of this year that the us

1:28

economy is clearly not in a recession

1:30

quite yet if , look at job

1:32

gains it was broad based on saw

1:34

the unemployment come down and

1:36

i think this putting pressure on the feds

1:38

you keep foot on the and continue

1:40

to be very hawkish from a monetary

1:43

standpoint in this is clearly reflected

1:45

in rate hike priced into

1:47

the markets over the course of this first year

1:50

of this tightening cycle so on

1:52

on on the economy is still moving

1:54

forward although it's decelerating we

1:56

still have we still strong labor market and it's gonna

1:58

take some more pressure from the the a bring that under

2:01

so you said something really

2:03

interesting and this is a either

2:05

this is a sequel we need to dig into the

2:07

are you were he said it it we

2:10

have a strong

2:11

labour market i say again but now it's decelerating

2:14

see you see this number and you think like

2:16

not only in print were not only not recession

2:19

like it's it's pretty smoke in here i'm in

2:21

a subsequent really good growth number of

2:23

but what do we need to understand about the timing

2:26

why you think it's decelerating when we have unemployment

2:28

three point five percent

2:29

will the economy overall is decelerating

2:32

in fact the labor market is continuing to be

2:34

healthy just some kind of hundred number

2:36

around how strong today's print was you

2:39

go back to the last decade i'm from two

2:41

thousand two thousand through the end of two thousand and nineteen

2:43

the average job per month was one hundred

2:46

and eighty three thousand the de france

2:48

with three times that number right so

2:50

you can to have a strong labor markets

2:53

the you're seeing signs of deceleration across

2:55

the economy you're seeing and and housing ,

2:58

h b homebuilder survey had it's

3:00

second largest monthly drop earlier

3:03

as a couple weeks ago i missing weaker

3:05

housing starts weaker permits you're

3:08

seeing it and manufacturing pm manufacturing which tends

3:10

lead the economy by two quarters on

3:13

that came in at fifty two point eight but the more

3:15

forward looking component of that new orders dropped

3:17

to forty eight which is almost recessionary

3:20

so you're seeing some deterioration

3:22

seeing us economy but it's you're seeing some pockets

3:24

of strengthen the last of resilience

3:27

is is clearly the labor market here

3:29

yeah so you you actually have

3:31

some of the sunset that your time but i think you'd started

3:33

on of a dashboard which i think

3:35

is really helpful because

3:37

you can't just look at this one number right

3:39

kansas look at jobs and been hearing

3:42

a lot of the people that come on our air have

3:44

really been pointing out that there are a leading and lagging

3:46

indicators right and so something like unemployment

3:49

reports i think grab headlines

3:51

is this you when it's this strong when

3:54

you look across your dashboard which which we're

3:56

gonna be able to pull up

3:58

what are we

3:59

the

3:59

what do we need to think that in in terms of ways leading

4:02

and what is what is telling us what's gonna happen in the future

4:05

which is what we want to do with our investment choices

4:07

right and what's what's happening in the past

4:10

that that matter

4:11

weird a jobs fall in

4:13

in that lineup

4:15

or jobs or ever really more of a coincidence

4:19

you know usually sees strong job creation

4:21

and then all then ceremony had into recession it drops

4:24

pretty meaningfully on but at five hundred

4:26

plus thousand jobs being created being again

4:28

i think we're going to see much more deceleration if we

4:30

end going into recession and

4:32

biggest he bought from our dashboard of we've

4:34

had we've had of deterioration

4:36

in the dashboard over the last two

4:39

months particular i'm in july

4:41

we had three indicator changes and this a

4:43

stoplight analogy were green as yellow

4:45

caution and bread is recession and the three

4:48

indicator changes that we have less month or commodities

4:50

and retail sales both going to read yorker

4:53

of moving to yellow but i think more importantly

4:55

we've gone to an overall yellow cautionary

4:58

and recession rest are are rising pretty

5:00

dramatically as the said tightening

5:03

starts to make it's way into the economy

5:05

and about the market really quickly

5:07

maggie although the headline jobs

5:09

print is really important for the path of said policy

5:12

my favorite labor market indicators

5:14

initial jobless claims one of the top

5:16

three variables and the dashboard usually

5:18

it's the last one the turn red claims

5:21

have been rising right there up to one hundred

5:23

and that you hundred and sixty thousand per week

5:25

i'm they continue to rise to the high two hundred

5:27

thousand per week or maybe three hundred thousand

5:29

per week range i'm going to be a lot more

5:32

concerned that it's gonna

5:34

be more of a base case than it already is

5:36

that that's so interesting and i think that

5:38

you to one the things we were talking about when were

5:41

you with the editorial team when were discussing

5:43

the number and ready for the show was wait

5:46

a minute the have only been seeing headlines about

5:48

lay offs me with billie almost every day

5:50

we've been seeing and maybe they're nice massive

5:53

but they're pretty consistent and we certainly

5:55

heard some of it you earnings as well companies

5:58

talking about that that

6:00

would be showing up to the weekly jobless claims why

6:02

isn't that captured more this monthly number

6:04

can we then we want to say trust

6:07

the number we know

6:09

these numbers get revise we know the

6:11

i'm both on a monthly basis and

6:14

when the next month comes out and also at

6:16

the end of the year right with we talked about this in

6:18

a recent interview on religion is a big like

6:20

goes back the year and and and looks at everything

6:22

in it should we not be putting

6:25

that much satanist jobs report or

6:27

is the labor market strong h

6:31

eventually going to change be one of the last things

6:33

change

6:35

what you make a lot of interesting points and if you paint

6:37

a broader mosaic of the labor market

6:40

yeah this was a blockbuster prince but you

6:42

get the establishment number on we

6:44

saw five hundred and twenty eight thousand today

6:47

spell see of the household number so

6:49

there's to labour surveys that are out there and although

6:51

the hassle number was at one hundred and seventy

6:53

seven thousand this over

6:55

the prior three months then it wasn't

6:57

positive it was showing a very different picture than that

6:59

the headline jobs number and with initial

7:02

jobless claims continuing to creep higher

7:04

from here and listen for good job

7:06

openings or down one two

7:08

million over the last three months

7:10

rights you're seeing peak labour tightness a

7:13

lot of these pieces of the puzzle are clinging to

7:15

a slower labor market rather

7:17

than the strong print that we saw today so

7:20

i think it's gonna take some time to get a better handle

7:22

on which direction is going but i put

7:24

my money on successively marks probably

7:26

slowing rather than staying as strong as this

7:28

headline number suggests

7:30

are you surprised you're not seeing it yet

7:33

i am i am surprised

7:36

yeah i make sense why you have your

7:38

so many job openings in his thirst for labour

7:40

last year was the strongest your of real economic

7:43

activity in the us is nineteen eighty four scared

7:45

pandemic related issues swamp

7:47

with people not wanting come back into the labor

7:50

market and people were flush with cash

7:52

from the pandemic unemployment benefits

7:54

but again and all that is moving and

7:56

reverse now you have a fiscal negative

7:59

impulse the on the us economy a

8:01

lot of this christians have been stance and

8:03

economic growth is clearly decelerating

8:05

at this point the said really wants to tamp

8:08

them down so my view

8:10

is that he in the even though this

8:12

was this was number for me personally

8:15

am i i think that we're going to see a materially slower

8:17

labor market as we move to the back of the year

8:19

and it's a negative fiscal impulse

8:21

in the know basically have no benefits

8:23

know

8:24

if it's can he was package is coming from the government

8:26

and then we probably other a little

8:28

one just pats were probably can grind into

8:30

gridlock as we head into the midterms

8:32

alright so that's it that's i

8:34

as a really great discussion the

8:36

growth picture we know the other thing

8:38

that matters inflation especially when it comes

8:41

to the sad and so

8:44

i always thought that

8:46

are you know have had used to have economists

8:48

tell me that the labor markets really

8:50

in wages are really important because

8:53

they're sticky rice your of food

8:55

prices grub down to gross the store but once

8:57

people a raise they give it back then

8:59

he gets i built into structural inflation

9:02

how much does the wage component

9:05

matter here and does that strength

9:07

of labor market the fact that it's hey

9:09

the nine so long

9:11

that a problem for the fat

9:14

it is a problem from the sad and

9:16

it out there is a mosaic of

9:18

you painted of wages not all signals

9:20

are pointing in the same direction up until the

9:22

print that we got today by this three

9:24

major ah measures of wages

9:27

you had the average hourly earnings that's come out

9:29

in today's reports that jumped

9:31

up to a half a percent month over month i'm

9:33

that's a real acceleration from what

9:35

you've seen your recently army

9:37

has the atlanta said atlanta said

9:39

tracker which has continued to accelerate

9:41

all year it's had six point seven you

9:44

have the employment cost index the easy i

9:46

which we just got a week ago which so

9:48

acceleration so too were showing acceleration

9:51

average hourly earnings up until this for least for

9:53

showing a deceleration now

9:55

with this reversal i think the said

9:57

has to remain hawkish there's

10:00

wage growth is not coming down to the level

10:02

at would be consistent with a two or three percent

10:04

inflation number so i unfortunately

10:07

am now that there are singing from the same embark

10:09

on think this admit creates a

10:12

path for a hawkish fed going forward and i think the markets

10:14

are a bit too optimistic

10:16

for that dovish pivot

10:18

hey everyone we're going to take it

10:20

with break right now to hear a word from our partners

10:22

will be right

10:23

with more of the day's top analysis

10:25

on the real vision

10:26

ali briefing thanks

10:28

for listening to the real reason podcast today's

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yeah so we've got some great questions coming

11:42

in and end of joe roger welcome

11:44

to the conversation the in everyone else out there feel

11:47

free to drop the men and will get as many as

11:49

we can go see asking if

11:51

the dashboard has from

11:53

green to yellow can go back

11:55

to green war is

11:57

this a sign that read his next

11:59

essentially can this be a soft landing

12:02

great question joe

12:04

yes have you look the dashboards history

12:06

which goes all the way to the early sixties

12:09

you've had twelve yellow signals overall

12:12

eat of those turned into recession for

12:15

those were non recessionary

12:17

now and three of those instances the dashboard

12:19

turn yellow when went back to green and

12:21

only one of those instances of went to a red

12:23

signal and recession never materialized

12:26

but i think importantly with those three

12:28

times where it went yellow back the green each

12:31

of instances ninety ninety five ninety

12:33

ninety eight and two thousand and sixteen

12:36

the fed had a dovish pivot the

12:38

ninety five eight they ended up cutting rates

12:40

by seventy five basis points in each of those instances

12:43

and in two thousand and sixteen the market

12:45

for pricing and for rate for that year

12:48

the janet yellen so three

12:50

of those rate hikes off the table in the

12:52

early part of two thousand and sixteen

12:54

so the net effect was a seventy five basis points

12:56

loosening now you fast forward to today

12:58

again with his hot jobs number that we

13:00

have here potentially a all inflation

13:03

from they're going to get next week and then we're going get

13:05

in august and before

13:07

the next step on see meeting i don't see

13:09

the said moving away from

13:12

this current hawkish path of

13:14

tightening with inflation with a nine

13:16

handle on it currently so again

13:18

there there has been instances where went to green but

13:20

the said was instrumental on on those reversals

13:23

the roger with another great

13:25

question if you knew the jobs report

13:27

would be this big wouldn't have thought

13:29

the markets would be down a

13:31

lot of people very confused

13:33

by the market reaction we're seeing of

13:36

the

13:36

the view who maybe are out on

13:38

a friday afternoon are

13:39

late friday evening i if you're in europe

13:42

or not in front any kind of computer we

13:44

did see bond yields move on say

13:46

we saw a spike in yields on and year

13:48

or two point eight then

13:50

change right now but stocks

13:53

and that's what i the questions

13:55

referring to remarkably com

13:58

we saw the dow up a quarter percent right

14:00

now sec was gonna have a percent as be

14:02

fractionally small caps rob

14:05

and you see the vic's at twenty one

14:08

are you surprised

14:09

i personally am surprised

14:11

when you got the released this morning

14:14

markets are down about one percent and

14:16

they've rally back in this is again

14:18

as you mentioned with the rise of the ten year morale

14:21

sistine basis points i

14:23

think the markets are sniffing out a

14:25

weaker inflation friends inflation think that's what's

14:27

in the margins signaling here ah

14:29

there's now casting to casting don't

14:31

buy the cleveland said cleveland big

14:33

estimate what inflation's going to be before

14:36

it actually comes out and the

14:38

july france for eyes expected

14:40

to be point two seven percent

14:43

on a month over basis you and your

14:45

lies that that's three point two

14:47

four percent right and obviously

14:50

because you'd have lower energy and lower food

14:52

prices over the course of this month

14:54

so if we get a city i printed them

14:56

the your be your number is going to be high

14:59

as it takes long time for these changes

15:01

to filter into those numbers on a month over

15:03

month basis which is what the fed is gonna be looking

15:06

at we get something in line

15:08

with what is being projected by this now

15:10

casting tool i'm your call it point

15:12

three point four percent am

15:14

i think the markets are going to continue to rally and

15:16

have hope that maybe the said won't be as

15:19

hawkish as was initially feared by that's

15:21

my read into it if it was certainly was surprising

15:23

to me

15:24

yeah it's really interesting because

15:26

i'm harry my laundry said how it's had a volley

15:29

valley i i the founder and ceo of preval

15:31

cap a global have recently

15:33

and they talked about something that i think is really

15:35

rollins into this and and it's basically

15:38

how rapidly everything's

15:40

been moving let's have a listen to that club

15:43

we can this year and we were very

15:45

very negative on the bond will

15:48

bush thinking growth and inflation

15:50

we're going to continue higher power to the mcewen maybe

15:52

mcewen maybe a little bit of to to the

15:55

and the fed was just completely outside of chicago

15:57

and go to make up the place this have

15:59

a cast

15:59

which would not be good for a lot of discussion

16:02

that's pretty much played out if we look

16:04

at some the loot leading killer looking forward

16:07

all of them are straight

16:09

lower the thing that contemplating

16:12

working with right now there

16:14

were things are evolving and such a rapid

16:16

pace that i would have expected so

16:19

the economic number that we've done recently wanna

16:21

be in i'll be york fed surveys

16:24

york

16:24

come amid the new orders inventory

16:27

i some friends i would expect to defeat the of

16:29

a long time but everything's happening such

16:31

a rapid rate

16:32

that the slow down today

16:34

really taking hold and that

16:37

partially due to what the fed is done on

16:39

these are some the largest six what moved in

16:41

and to your age mortgage rates in excel

16:43

rec center that leading to a decide

16:45

today

16:46

the to mcmahon change of meeting home prices

16:48

are down or eleven point nine percent which

16:50

is never happened before

16:52

and you're seeing now shoes

16:54

big moves and and on the prices paid for me

16:57

yesterday eyes and gentle with prices paid

16:59

and was the biggest move

17:00

the downside in the decade the fourth

17:03

largest moves and biking forty eight

17:06

you're just moving it's such a rapid pace if

17:08

i'm thinking of the world looking forward and

17:10

see growth that is still down

17:12

in the shower and pretty pretty swiftly

17:15

and inflation is likely to fall to

17:17

well i think that the biggest

17:20

sort of bearing a perception

17:22

i have

17:23

on inflation frightened can ultimately be wrong

17:26

base case that inflation going to fade

17:28

much faster caught

17:30

by the end of two one than than the market face

17:33

so right now for me if

17:35

i look across a struggle role cycled all

17:37

of those ratios

17:38

are tracking the average drawdown of

17:41

the growth down cycle except for bombs on average

17:43

bonds or hop along

17:45

and to thirty years or treasury's

17:47

or up on average twenty

17:49

percent and now we're down about fifteen to this

17:52

huge discrepancy between

17:54

how

17:55

bonds are trading relative to normal growth down

17:58

cycle and we're at today

17:59

and that become our our largest focus

18:02

and it seems

18:03

late you bought the fed inflation

18:05

the i'm looking out of the next

18:08

six i think inflation's really going

18:10

the undershoot the downside

18:13

which is where you're going to

18:15

have some the significant my jr

18:20

an apple interview is available on

18:22

our website and it's worth pointing out teddy's

18:24

son posted a twenty one percent return

18:26

in the first quarter because he got

18:28

that inflation call right on just

18:30

that inflation call is so critical

18:33

now and you deathly there's

18:35

a wide i'd say

18:37

your field of opinion and not lot a

18:39

consensus on that teddy's in the camp

18:41

that it's gonna fall quickly it sounds like you

18:44

agree with somewhat that you do think

18:46

that we could get this turn in inflation

18:49

i do, i do, i think there's

18:51

clear signs of you're seeing it across

18:53

the commodity complex, the energy complex, which

18:56

is going to start to filter into those numbers

18:58

on a a over you seeing

19:00

a lot of inventory, glen at

19:02

the air retailers again, huge mrs

19:04

for walmart and target yet

19:07

again on that discounting is going to make

19:09

its way into inflation

19:11

there is going to be some sticky areas obviously shelter

19:14

is going to be sticky i'm housing prices

19:16

lead inflation a by about

19:18

fourteen months and with home price appreciation

19:21

still at very strong levels that's

19:23

not something that's going to come out of the overall inflation

19:25

numbers until we get to the middle part

19:27

of next year i'm but i do think

19:29

i'm inflation is going move down in a more meaningful

19:31

fashioned but i think from the feds vantage point what's

19:34

that line of demarcation where they feel

19:36

that that trend is well established in they

19:38

can start to focus on saving the economy

19:41

back in nineteen eighty two hoboken the feds

19:43

or to get very darvish i'd that year

19:46

when cp i was at six or seven percent

19:49

and even though they got dovish you fast for the nineteen

19:51

eighty three cp i sell to two

19:53

percent so obviously we're

19:55

very deep recession very different dynamic

19:57

the what we have today but i think the key here is

20:00

gleason in a lagging indicator and what's

20:02

that line of demarcation for the fed is it four

20:04

percent is a five percent certainly not

20:06

gonna be two or three percent of the of a

20:08

pivot

20:09

so this interesting and it's came up with darrius

20:11

yesterday for those you are listening are

20:13

you at the and do you think the said

20:16

is looking at the rate of decline

20:18

of inflation or the absolute level

20:21

are they targeting a level

20:23

i think it would be happy don't know

20:25

we will we don't know by it i think going to

20:27

be looking at the the month over month rate change

20:29

and but the level on a month over month basis

20:32

right the your of your numbers are can be very stale their selves

20:34

where we ban that we're we're going on

20:37

in the key is that the said the to focus

20:39

on oil rabia i'm a couple

20:41

of epilepsy meetings ago because

20:43

it appeared that inflation expectations had on

20:45

anchored to the upside with that rogue

20:47

pulling mary university of miskin inflation

20:50

expectations number it turned out to be

20:52

a bad datapoint it came back down i

20:54

don't think the fed know it gonna be focusing

20:56

on oil or food because they're notoriously

20:59

volatile i think is gonna be focusing on

21:01

core inflation and if core again

21:03

can moderate arms a levels consistent

21:06

with maybe three or four percent and stay

21:08

there am i think that opens

21:10

up a runway for a pivot but at this point and

21:13

what we have far that the said nice to their

21:16

heels and to the ground and they need to stick with

21:18

this hawkish narrative

21:20

does the said need to push the economy

21:22

into in order to get that

21:24

inflation down to where they're can

21:27

that happen in a soft landing scenario

21:31

if they want to get all the way that super sense they're

21:33

going to need cause a recession right given

21:35

were how tight the labor markets are i mean

21:37

that three point percent this matches this year

21:39

lows and the unemployment rates i'm

21:42

again we talked about wages earlier out is

21:44

key source of demand which stokes inflation

21:47

i'm and ordered but the genie back in that bottle you

21:49

need to cause a recession but of the said that

21:52

they were comfortable living with a three percent

21:54

or three and a half percent inflation rate would

21:57

would hire them what that one eight but again

21:59

with their comfortable with i'm

22:01

i don't think that they have the cause recession and we can

22:03

have a soft landing scenario

22:06

we're going to take another quick break to hear a word from

22:08

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22:10

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into think i'm by the way we have some comments

22:52

you know we look at this labor market and then you have you

22:54

know for ordinary people kind put their

22:56

finger in the air and saying and

22:58

we're getting some comments on twitter from india

23:02

the angelo and chester i'm

23:04

then says that five hundred thousand people taking

23:07

second jobs in order to afford gas

23:09

food and ran how

23:11

yeah we

23:12

the body to feel that their car it's like take

23:14

your breath away sell their truck

23:16

and shots you're saying just as working

23:18

folk taking more jobs pay the bills

23:20

nothing to see here there is that

23:22

isn't there that you know are these sort

23:25

the the the gains in labor and employment

23:27

that they look to be from the headline

23:29

or is this just people because of the

23:32

high cost of living and inflation just

23:34

having to work more

23:35

part time job sector coming back

23:37

out you know of retirement in order

23:39

to make ends meet

23:42

i think is brett probably little bit

23:44

of both i there's probably an element their of

23:46

people getting a second job in order to

23:48

our live in these these high inflationary

23:50

types of environments lights are again i

23:52

still think the labor market is strong at this point i just

23:55

think it's not as strong as what we saw

23:57

today with sat the

23:59

deviations and we talked about with a household

24:01

survey with the claims that it is

24:03

well there's a lot of data points that

24:05

are suggesting that that may be a bit of an outlier

24:07

and as we get so recession and

24:09

this data is revise it may be a much lower

24:12

number them what are currently at showing

24:14

at the moment but , i

24:16

do think completion his party paint playing a small

24:18

parts are in that distortion

24:20

so it's so

24:22

you know we were

24:23

the situation where there is a

24:26

you just mentioned the saddest

24:27

ah cash and this numbers gonna keep them hawkish

24:30

on them were to figure out with the demarcation

24:32

line is where they feel comfortable

24:35

that they can make a pivot arm

24:37

and so joe is asking

24:39

should investors with against that drop

24:42

out frameworks investors day defensive

24:44

the equity exposure or should they they've

24:47

gone more rare

24:49

i think this is the trillion dollar question

24:52

and you know is this a bear market rally

24:54

or is this something that's adorable low

24:57

and in my opinion i think that this

24:59

is a bear market rally i think the markets are a little

25:01

too optimistic now and thinking

25:03

about this bear market in particular fear

25:06

markets as the two phases the first

25:08

phases is multiples contract so multiples

25:10

levels come down and that happens he

25:12

went from one point three times for returning

25:15

some into the year trump down to around

25:17

sixteen times forward earnings the

25:19

second components his earnings

25:21

expectations coming down and we'd

25:23

just started to see earnings

25:25

expectations come down expectations twenty sound

25:28

about three percent i think that's

25:30

a very optimistic number given the fact that

25:32

i think we either going to have a material slowdown

25:34

in the economy or we're going to have a shallow and

25:37

looking at the last recession learning

25:40

has come down on average closer

25:42

to twenty five percent so i think

25:44

that's a too rosy expectations

25:46

are embedded into the markets and that needs to be price

25:48

so even though this has been a tremendous

25:51

six weeks and the markets are getting

25:53

more optimistic that a soft landing i

25:55

think at the end of the day earnings are are

25:57

too rosy in either events and

25:59

whatever path we go and i see

26:01

a market pressure as we move later and the

26:03

year

26:03

so do you favor bonds

26:07

where where do you see opportunity and joseph

26:09

you would sectors look to you but

26:11

but should we be asking what assets look attractive

26:13

here

26:14

well from sector perspective you've seen

26:16

this bouncing cyclicals i was going to happen

26:19

there was a lot of negativity price there i'm

26:21

in now with return of optimism of a soft

26:23

landing at a dovish fed pivots i'm

26:25

not surprised to see those areas rebound but

26:27

i think as we look out on the horizon from a market

26:29

or a sector perspective you want

26:31

to be allocated to more defensive areas

26:34

of the marketplace a traditionally

26:36

consumer staples in healthcare are

26:38

the best performing sectors and

26:40

large to slow down an economic activity or recession

26:43

utilities tend to do well even though the didn't

26:45

do very well in the two thousand and one

26:47

recession arms of those would be the

26:49

areas that i'd be looking for i'm really focusing

26:52

on quality companies companies that have

26:54

a high level of visibility on their earnings

26:56

strong balance she's don't need access capital

26:59

in this type of markets from an asset class

27:01

perspective am i think growth overvalue

27:04

and seen that relationship or exert itself

27:06

over the last three months with growth on large

27:08

cap side outperforming by about five percent

27:11

but a again on again on you

27:14

want to be really allocated more towards governmental

27:16

bonds high quality bonds aren't

27:18

even have very strong rally or

27:21

in high yield and some of the risk your areas of

27:23

the bond market but again facing optimistic

27:25

scenario so there's there's areas of opportunity

27:28

but i think you really want to be thinking defensive

27:30

at this point bonds have been tricky

27:32

haven't tricky haven't i believe heard people

27:34

trying to make that phone call and

27:36

the anything

27:37

rough road did d c more clarity

27:40

ahead

27:41

and it's not going to be a straight line

27:43

and got a today and

27:46

, we get a hot inflation friend if you

27:48

can certainly see the ten year treasury and

27:50

in some more headwinds for it for bonds from a duration

27:52

standpoint but again

27:55

thinking about how much oil and

27:57

food have dropped year i think we're

27:59

going to the peak of inflation is gonna come down and a

28:01

pretty material way and

28:03

if you're gonna have gonna potential recession i

28:06

have a hard time believing that the ten year treasury

28:08

is going to levitate or move a lot higher from

28:10

here so am i i think the

28:12

on the path of least resistance for the ten year treasury

28:15

even though you've had kind of a rebound is

28:17

is down from here

28:18

i and roberts

28:20

your echoing you on you tube say the only reason

28:22

why places down as do that it causes energy

28:25

nothing to do with the small rate hikes

28:28

ah you know again

28:31

i think a lot of people are are wondering

28:33

and such a tool that the said has

28:37

what are the what would it

28:39

a rest said they just they over

28:42

the overdo it you know they just

28:44

they just a hike too long

28:46

too far cause

28:48

more pain to the economy then they

28:51

would like to you know we live we think they're

28:53

they're trying to engineer a soft landing

28:57

they have a great track record at died you know

28:59

what is that what is that that

29:02

probability that they overstepped

29:04

if you're to the last thirteen primary said tightening

29:07

cycles since nineteen fifty five

29:09

or even soft landings so history

29:11

is not on the fed side and

29:13

if this tightening cycle goes forward as

29:15

was being pricey day three point

29:18

six percent of rate hikes and

29:20

the first year of this fed tightening cycle this

29:22

would be second fastest start to have

29:24

tightening cycles since nineteen fifty five only

29:27

trailing nineteen eighty one volcker had to break the back

29:29

of inflation and given the fact that they're tightening

29:31

into a slowing economic backdrop

29:34

and the lag the sex of monetary policy

29:36

and they're doing quantity to signing also this

29:39

all leads to a very strong possibility

29:42

of a policy error but if you listen to palin

29:44

you listen to the said inflation

29:47

is i enemy number one

29:49

at this point in their more than willing risk

29:51

a recession in order to maintain

29:54

their credibility and root for store price stability

29:56

so he were to answer your question i

29:58

think there's a

29:59

the past year

30:00

here yeah you know we we

30:02

we tend to be broken right out of the end of the u

30:05

s close so in obvious

30:07

that we're focusing on us markets can the us

30:09

economy do well as the rest of the world does

30:11

not mean we have europe looking just it'll

30:13

in dire straits going

30:15

into this into the easy be just more and have

30:18

i eat a dire warning about what's ahead

30:20

and we know the situation me to be a warning

30:22

of a very long protracted in

30:25

the uk a we know china is

30:27

i growth is slowing we take me the even

30:29

more than they're admitting am he can we be

30:32

the only

30:33

country growing well i mean we don't to rest

30:35

of the world's contributor

30:37

what is an old adage out there when

30:39

the you ask is cold the rest the world gets

30:41

the flu and yeah also when

30:43

we get a hiccup , economic

30:45

activity causes a global recession no

30:48

other country outside the us has caused the us recession

30:51

so while yellow a lot

30:53

of on as some of the us economic

30:55

activity is dependent on exports

30:58

vast majority of us segment namic activity

31:00

is from the consumer so we're relatively

31:02

insulated so

31:05

even if you are seeing a slowing growth impulse

31:07

you have a recession in europe north

31:09

africa europe had a recession in two thousand and

31:11

eleven the us continue to grow i

31:13

don't think that that's going to materially author

31:16

our prospects of recession and

31:19

singing about a soft landing maggie there's a very plausible

31:21

pastor that maybe the us consumers

31:23

less interest rates sensitive than they have been historically

31:26

household leverage that levels last seen in the early

31:28

nineteen seventies and over ninety percent

31:30

of americans have extreme mortgages right

31:33

very different situation when you had in two thousand

31:35

and seven almond about half of

31:37

the had six rate mortgages

31:39

on this

31:42

is will be reluctant to let go of their employees

31:44

because the scarcest commodity of this

31:47

cycle has been labour right you seeing

31:49

a pick up of initial jobless claims like maybe

31:51

doesn't move a lot higher from here especially considering

31:54

that margins had just started to come down the

31:56

usually takes about three years from keep margin

31:58

to the start of a recession

32:00

it's been quarters so again or

32:02

bases a recession but we do see a very

32:04

plausible past two or a soft landing but

32:06

it's becoming more more narrow as the

32:08

said moves on this hawkish pass

32:10

it's so just because it's is

32:12

your base cases the recession but you just gave a

32:14

really compelling argument for a soft landing

32:17

it's the best one i for

32:19

there's certainly a path that led i

32:21

that exactly

32:21

about that that's a really three

32:24

star about the six mortgages i

32:26

haven't heard anyone say die and that's a really

32:29

really interesting point so half

32:31

of americans are out of six mortgage now and

32:33

what was it in the financial crisis is

32:35

it because everyone with on those sort of on

32:39

those all

32:41

the different kinds of the got roped into those floating

32:44

rate mortgages

32:45

yeah back in the the housing crisis was

32:47

fifty percent of americans had of six fifty

32:49

cent per cent were variable so as rates

32:52

move tire right disposable income the

32:54

at it it it's strength say it's

32:56

over ninety percent of americans as a

32:58

six mortgage so the only people really being

33:00

affected by higher housing market markets

33:03

are people who just bought a house or that

33:05

ten percent on that the again

33:07

are going to reset higher with higher mortgage

33:10

rates in , you know the

33:12

one thing i'll mention that he thinks porn from

33:14

housing market respect is is

33:16

on the biggest asset for the bottom

33:18

sixty percent of american households

33:20

is their house right in his confuse

33:23

the home price appreciation right now because

33:25

of this markets off it's disproportionally hurting

33:28

the top twenty percent of american households

33:30

and those are the same households that have the lowest

33:32

propensity to spend an extra dollar

33:34

either spending patterns or are pretty consistent

33:37

so again kind of thinking back to the soft

33:39

landing scenario think maybe the consumer

33:41

is a little bit less interest rates sensitive than what we've

33:43

seen in may be able to weather the storm

33:45

with the said tightening cycle and

33:48

get to a point where inflation that a much lower level

33:51

that's so interesting jeff and we were by

33:53

the way at you know again the team we were slacking

33:55

about mortgage rates because they've had a huge move

33:58

but again

33:58

your you to your point

33:59

you're on a fixed mortgage rate is less of an issue

34:02

on the very very tough as you're in

34:04

the mail

34:04

china clothes on a home unser

34:07

feel free all throughout their

34:08

you and i am just this has been such a fantastic

34:10

conversation and we're gonna keep coming

34:13

back to the seems about growth and inflation

34:15

i'm because this is a really important the

34:17

period where and when doing a lot of work on the academy

34:20

helping get your framework right

34:22

so under this scenario if you think there's gonna be what

34:25

do you do you give us some tips on

34:27

that on if you think it's a soft

34:29

landing

34:29

you just gave us some some good

34:31

i get about why that might

34:33

happen then you can be looking at different things

34:35

and plug in your time two that's

34:37

on it it's gonna supercritical so thank

34:39

you so much for you know help an assertive dig

34:42

that jobs number try to make some sense of

34:44

it just we appreciate it

34:45

my pleasure to be here thank you

34:47

fantastic by the way as

34:49

i'd love to get see that from from

34:51

everyone listening about what you think about that six

34:53

mortgage rate and are you hearing anyone

34:56

concerned about the rise in mortgage rates are is

34:58

everybody seem chino seem pretty good about

35:00

the i can that's really fascinating conversation

35:02

that we're gonna have to can the new i'm

35:05

appreciate any feedback you're hearing from the in

35:07

your networks i'm just i

35:09

have a fantastic weekend everyone out

35:11

there listening enjoy yourself stay

35:13

cool stay hydrated and will see back here monday

35:20

what that revolutionaries thanks

35:23

for tuning into the real daily

35:25

briefing

35:25

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