Latest / Bloomberg Intelligence / The Latest On Inflation, Crypto Records, And Market Bubbles

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The Latest On Inflation, Crypto Records, And Market Bubbles · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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  Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
• 0:15
  Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com Slash podcast. Let's get over to UM.
• 0:23
  Speaker 1: Lisa ericson right now, Senior VP and co headed Public Markets,
• 0:26
  Speaker 1: the Public Markets Group at US Bank Wealth Management, Lisa, UM,
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  Speaker 1: I wonder what you think as we look at inflation
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  Speaker 1: numbers that are either shockingly high like the p p
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  Speaker 1: I number yesterday, or even higher than expected like the
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  Speaker 1: cp I number today, does that concern you, Well, absolutely mad.
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  Speaker 1: It's something that we're keeping an eye on, and while
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  Speaker 1: our base cases that some of those inflationary pressures do
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  Speaker 1: come down over the remainder of this year and into
• 1:00
  Speaker 1: UM certainly, the fact that we've got a pretty broad
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  Speaker 1: based basket of goods that are contributing to the inflation number,
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  Speaker 1: and the fact that it's taking some time for both
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  Speaker 1: the labor market and the supply chains to adjust is
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  Speaker 1: something that we want to keep our eyes on right, tins.
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  Speaker 1: Inflation is so broad based. I'm wondering what concerns you
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  Speaker 1: the most. Energy is a really easy thing to point out,
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  Speaker 1: and you think about the ripple effects for but are
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  Speaker 1: there places that are maybe less obvious that we should
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  Speaker 1: also be concerned about. Yeah, well, I think to your point,
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  Speaker 1: it's it's really two things. So one is just the
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  Speaker 1: fact that it's really across the broader base. So while
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  Speaker 1: you have some areas like energy that can be more
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  Speaker 1: volatile over time, what you see is, you know, over
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  Speaker 1: the last few months is really looking at the basket
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  Speaker 1: of goods. It's not just some of the areas that
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  Speaker 1: historically can fluctuate some as much, but also some of
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  Speaker 1: the stickier types of I think that are increasing. So
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  Speaker 1: that really is a concern, and I think, um, you know,
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  Speaker 1: the other issue is how much that then begins to
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  Speaker 1: affect inflation expectations going forward. And as we look at it,
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  Speaker 1: what we see is that there are some elevation in
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  Speaker 1: inflation expectations over the next couple of years as a result. Um,
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  Speaker 1: but you know, over the longer term, what we see
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  Speaker 1: is that those are trending down. So again, um, you know,
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  Speaker 1: that's The other thing I think we really want to
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  Speaker 1: watch is not just where the basket goes right now,
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  Speaker 1: but how that's affecting the expectations going forward. What do
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  Speaker 1: you expect in terms of the SMP right now? Um,
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  Speaker 1: we're I think up about year to date. Last year
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  Speaker 1: was a good seventeen percent gain, the year before that
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  Speaker 1: was almost Do we can we really move much further higher? Yeah?
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  Speaker 1: Great question that. Well, we're still optimistic on the US
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  Speaker 1: equity market and the SMPS five. And the reason why is,
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  Speaker 1: you know, overall, if you look at it, we've got
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  Speaker 1: a pretty nice context. Despite what some of the worries
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  Speaker 1: we are talking about with respect to inflation. If you
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  Speaker 1: step back and look at the indicators underpinning growth, for example,
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  Speaker 1: you know they're universally as strong, and we see the
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  Speaker 1: trend of movement of those indicators as continuing to be
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  Speaker 1: positive when we measure across a broad range. And you
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  Speaker 1: know that's also being reflected in corporate earning. So, as
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  Speaker 1: we all know, third quarter earnings reports came in very nicely,
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  Speaker 1: and that again was across the board as opposed to
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  Speaker 1: being limited to a couple of sectors. So you've got
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  Speaker 1: the fundamental support there for the market, I think to
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  Speaker 1: your point, you know, as we move into the question
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  Speaker 1: is really going to be you know how that continues
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  Speaker 1: to play out, you know, as some of the initial
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  Speaker 1: reopening spurt comes off, and then again as we've been
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  Speaker 1: talking about with the trajectory of what's going to happen
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  Speaker 1: with inflation, there's been so much talk about bubbles lately,
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  Speaker 1: I mean all year really, and then we've kept on
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  Speaker 1: charging higher. You know, Matt and I were looking at
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  Speaker 1: the screens. Just the Rivian IPO today is set for
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  Speaker 1: a very healthy pop as it starts to trade, and
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  Speaker 1: so we're unhealthy depending on how you look. Yeah, depending
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  Speaker 1: that was our big debate, do you pop or not? Um?
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  Speaker 1: And so that's the thing. Are you worried about valuations?
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  Speaker 1: If everybody is so constructive here, at what point do
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  Speaker 1: you start to get concerns that things are worth so
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  Speaker 1: much more than they're actually earning. Yeah. No, that's a
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  Speaker 1: great point, and you know, valuations is something to keep
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  Speaker 1: an eye on. But as we look at it, I
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  Speaker 1: think just the current low level of interest rates really
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  Speaker 1: actually makes valuations in what we would call the high
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  Speaker 1: side off fair but not excessive. So if you just
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  Speaker 1: look again at history and how much, uh, you know,
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  Speaker 1: earning yields are pricing over where interest rates are now,
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  Speaker 1: we actually see that they're above average, meaning that stocks
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  Speaker 1: are actually giving you a nice premium in terms of
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  Speaker 1: the potential return relative to fixed income um compared to
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  Speaker 1: that spread historically. So again it's something we want to
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  Speaker 1: keep an eye on. But in an environment like today,
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  Speaker 1: where again you see both the macro indicators as well
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  Speaker 1: as what's going on with corporate operations and earnings coming
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  Speaker 1: in very nicely, those valuations can be more easily justified. Lisa,
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  Speaker 1: great to get some time with you, Thanks so much
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  Speaker 1: for joining us. Lisa ericson their senior VP and co
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  Speaker 1: head of the Public Markets Group at US Bank Wealth Management.
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  Speaker 1: Let's get over right now to David Kat's, chief investment
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  Speaker 1: officer and President Matrix Asset Advisors. Have been talking a
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  Speaker 1: lot about inflation today, David, and we did see a
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  Speaker 1: higher print than anticipated on the cp I. What's your
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  Speaker 1: take so short term, there's no question inflation has picked
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  Speaker 1: up to a very eating full level. We don't think
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  Speaker 1: it's going to go away, but we do think it's
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  Speaker 1: going to trend lower starting in early two and we
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  Speaker 1: think it will get down to a manageable level. So
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  Speaker 1: we're looking for inflation to stabilize somewhere under like three
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  Speaker 1: and a half percent. We don't think it's ultimately going
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  Speaker 1: to derail the financial markets, but it does mean that
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  Speaker 1: we do think bond rates should be going up and
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  Speaker 1: and the Feds next move at some point we'll be
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  Speaker 1: moving rate higher. Well, how do you play the smp
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  Speaker 1: I mean, we're not seeing major losses here, even on
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  Speaker 1: its second day of declines after a very steady rally.
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  Speaker 1: What are you buying? How do you how do you
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  Speaker 1: deal with this for the rest of the year. So so,
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  Speaker 1: we've been pretty bullish about stocks this year in light
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  Speaker 1: of the most recent run up. We would not be
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  Speaker 1: throwing new money into the market basically because the market
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  Speaker 1: is pretty fully valued. However, there are a lot of
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  Speaker 1: very good businesses that haven't done nearly as well as
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  Speaker 1: the overall market, that are selling it fifteen or less
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  Speaker 1: times earnings, and we think there in lies the opportunity,
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  Speaker 1: so we think you want to be selective. Lots of
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  Speaker 1: very good businesses out there. Um, you know, companies like
• 7:07
  Speaker 1: an am Gen or Beckton Dickinson haven't done a lot
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  Speaker 1: but the businesses are doing well, very attractive valuations. UH
• 7:15
  Speaker 1: five serve in the technology and financial space as a
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  Speaker 1: very strong company. They have an activist involved. Yet the
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  Speaker 1: stock is down for the year. We think that easily
• 7:24
  Speaker 1: as like twenty or thirty percent upside. Zimmer is a
• 7:29
  Speaker 1: knee and hip replacement company. They just had a fairly
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  Speaker 1: mediocre quarter. Part of it was because of the COVID
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  Speaker 1: pick up. As COVID comes under control again, we think
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  Speaker 1: it's a great reopening play. Um. So there are definitely
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  Speaker 1: opportunities out there, but we would not get involved with
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  Speaker 1: the things that are really hot. We don't think now
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  Speaker 1: is a great time to be throwing money at the
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  Speaker 1: electric vehicle area or the battery area because we think
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  Speaker 1: a lot of those areas are very fully priced. Well.
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  Speaker 1: Even with that said, you see Rivan today poised for
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  Speaker 1: a really healthy pop if you could get syndicate. I
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  Speaker 1: hope you got it right. I mean, you know that
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  Speaker 1: those retail traders are also going to be loving that today.
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  Speaker 1: You know, how do you feel about a lot of
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  Speaker 1: these moonshot projects that are kind of happening in the
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  Speaker 1: world right now. At the end of the day, it
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  Speaker 1: does certainly seem like there's a whole generation of investors
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  Speaker 1: ready to jump on them. So it's a little bit
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  Speaker 1: worrisome to us. The that market has been exceptionally hot,
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  Speaker 1: and right now the electric vehicle car companies and batteries
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  Speaker 1: are assuming that everybody that's involved is going to be successful,
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  Speaker 1: and not only successful, but wildly successful. That's simply not
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  Speaker 1: going to be the case. So yes, the stocks and
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  Speaker 1: open up very richly. We think it's not going to
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  Speaker 1: be a great investment over the next one or two
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  Speaker 1: years because it's fully priced. We look at companies um
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  Speaker 1: like Zoom or Peloton that had all of this excitement
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  Speaker 1: a year ago. Those stocks are down by half to
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  Speaker 1: three quarters. We think it's not a great time to
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  Speaker 1: be speculum lative in the market right now. For the
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  Speaker 1: short term, it's gonna feel good, but we really believe
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  Speaker 1: that ultimately the music is going to stop and a
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  Speaker 1: lot of people are getting involved with companies that they're
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  Speaker 1: not paying attention to valuation and they're going to get hurt.
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  Speaker 1: What about companies. I mean, for example, everyone's bid up
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  Speaker 1: Tesla to make it a trillion dollar company, and meanwhile,
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  Speaker 1: uh Ford Motor Company is worth eighty billion. You know,
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  Speaker 1: General Motors is worth eighty five billion. Folkswagen, which has
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  Speaker 1: invested a ton into um the electric business is still
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  Speaker 1: only worth a hundred and forty billion. Do you like
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  Speaker 1: any of those legacy players. So, so that's a great point.
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  Speaker 1: Right now. Testla sells for the exact same valuation as
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  Speaker 1: the rest of the entire automobile industry, and we just
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  Speaker 1: don't think that's sustainable on the Tesla side. Uh. In
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  Speaker 1: terms of the other companies, um, the question is do
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  Speaker 1: you want to own an automobile company because more electric
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  Speaker 1: vehicles any of these companies make the less um oil
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  Speaker 1: um cars, you know, the regular combustion cars they're gonna
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  Speaker 1: be selling. So that is a zero sum game. In
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  Speaker 1: terms of the automobile industry. The one that we are
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  Speaker 1: most comfortable with right now is Toyota. We think they're
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  Speaker 1: going to be a winner in electric vehicles down the
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  Speaker 1: road and hybrid vehicles, and you're not paying a whole
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  Speaker 1: lot for it. But we think there are lots of
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  Speaker 1: other errors to make money in the market, and we're
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  Speaker 1: not spending a great deal of time on the auto sector.
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  Speaker 1: Bitcoin is at a record Do you think that it's
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  Speaker 1: an inflation hedge. We don't, um, you know, we're we're
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  Speaker 1: sort of old school, and old school hasn't been that
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  Speaker 1: helpful of late. But we like to have things on
• 10:40
  Speaker 1: a fundamental basis. We like intrinsic value, and when you
• 10:43
  Speaker 1: look at bitcoin, there's not a lot of intrinsic value there. So, uh,
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  Speaker 1: this is one that we're also pretty wary about. We
• 10:50
  Speaker 1: don't think it ends well. Um, so we would not
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  Speaker 1: be putting money. And we we do believe there are
• 10:55
  Speaker 1: a lot of people that are throwing money in, uh,
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  Speaker 1: simply because of fear of missing out. Everybody's talking about
• 11:00
  Speaker 1: how wealthy they became. Uh, so they're throwing money in.
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  Speaker 1: And once that bubble verse, we think it can go
• 11:05
  Speaker 1: down a lot. And what we'd say is, look at
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  Speaker 1: what happened during the Internet bubble of the late nineties.
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  Speaker 1: A number of the businesses simply went out of business,
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  Speaker 1: like an E Toys, but a number of great companies
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  Speaker 1: like Microsoft, Cisco, Intel, Um, we're all about a half
• 11:22
  Speaker 1: to three quarters lower ten years later. So when things stop,
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  Speaker 1: valuation matters. David, thanks so much for joining us. David Katz,
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  Speaker 1: President and Chief investment Officer over at Matrix Asset advisors.
• 11:37
  Speaker 1: Let me just quickly take a look at what we're
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  Speaker 1: seeing in terms of prices. Bitcoin trading up one percent
• 11:43
  Speaker 1: and change three dollars up to sixty eight thousand, five
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  Speaker 1: hundred and nineteen, just around the record high. We also
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  Speaker 1: have ether trading or ethereum Um I guess ether is
• 11:55
  Speaker 1: the is the right way to call it? Trading up
• 11:56
  Speaker 1: one percent and change about forty nine a coin to
• 12:00
  Speaker 1: forty nine. Let's bring in someone who knows for sure.
• 12:01
  Speaker 1: Mike mcgloan, senior commodity strategist with Bloomberg Intelligence. Um, I guess,
• 12:08
  Speaker 1: uh these highs? What what's behind this rise that we've seen.
• 12:15
  Speaker 1: Is it just excess liquidity? Is it concern about inflation?
• 12:19
  Speaker 1: Is it has China? Have China and Jamie Diamond and
• 12:23
  Speaker 1: trashing Bitcoin again? What's going on here? Mike hey Man, Well,
• 12:26
  Speaker 1: the the key thing is it's actually much more simpler
• 12:30
  Speaker 1: to that than that. It's all the above. It's one
• 12:33
  Speaker 1: of those points. Now it's November, we only have two
• 12:35
  Speaker 1: months left than the year. There's a lot of cash
• 12:36
  Speaker 1: on the side. Bitcoins one of the best performing assets
• 12:39
  Speaker 1: on the planet, and a theorium is two and it's
• 12:42
  Speaker 1: got fundamental independents that are increasing in improving. So I
• 12:45
  Speaker 1: think that's what you've seen now is typically it is
• 12:47
  Speaker 1: the best time of year. It's at sixty eight thousand
• 12:50
  Speaker 1: right now. I think it's heading towards a hundred thousands.
• 12:52
  Speaker 1: The questions when and the key the question I asked
• 12:54
  Speaker 1: is what's going to keep it down? Now? Today was
• 12:56
  Speaker 1: the key key barometer to that. You know, CPI printed
• 12:59
  Speaker 1: high and expected, Bitcoin was down and Dye it popped
• 13:02
  Speaker 1: right up. Gold was down and it popped up. You
• 13:04
  Speaker 1: mentioned silver and earlier segment popped up. But Bitcoin is
• 13:08
  Speaker 1: you know, it's the one with the vig it's potential
• 13:10
  Speaker 1: upside for the future. So I look at this as
• 13:13
  Speaker 1: you know, this is a market that's had a substantial correction.
• 13:16
  Speaker 1: Demand and adoption are increasing, it's becoming part of every portfolio,
• 13:19
  Speaker 1: and supplies declining. What makes that go lower? At this stage,
• 13:22
  Speaker 1: it's pretty strong and I don't see overbought indications yet.
• 13:26
  Speaker 1: So it's interesting because while the bitcoin, ether other coins
• 13:30
  Speaker 1: are definitely up today, it's not everything. Guys. She was
• 13:34
  Speaker 1: down and that was one of the I just wanted
• 13:37
  Speaker 1: to mention it here because I don't think you're seeing
• 13:40
  Speaker 1: everything moving lockstep necessarily anymore. Well so, no, thanks for
• 13:44
  Speaker 1: mentioning that Sheba in you is down, and that's a
• 13:46
  Speaker 1: speculation machine that most of us hope will just get
• 13:50
  Speaker 1: it over with and go by and go back, just
• 13:52
  Speaker 1: like those kind of went back. It's just a machine
• 13:54
  Speaker 1: for speculation. And then you have pure infrastructure building in
• 13:58
  Speaker 1: bitcoin and there, and they're just in the world a
• 14:00
  Speaker 1: better place. She believe it was for speculators clearly undisputable.
• 14:04
  Speaker 1: And then things like a Theorium there, every single cryptodology,
• 14:07
  Speaker 1: the most widely traded Cryptosis and Planet, most of them
• 14:10
  Speaker 1: traded in theory platforms. And then you have Bitcoin becoming
• 14:13
  Speaker 1: global digital collateral. So to me, that's what's happening. The
• 14:16
  Speaker 1: inflation heads. I don't really think it's so much there yet.
• 14:19
  Speaker 1: It will be when it gets to the higher plateau.
• 14:22
  Speaker 1: I see bitcoin in theorum right now in that price
• 14:25
  Speaker 1: discovery stage, and it's just that time of year. Well,
• 14:27
  Speaker 1: there's boy. Technicals are good, fundamentals are good. Where does
• 14:31
  Speaker 1: it end up the year? That's kind of the quick
• 14:32
  Speaker 1: key question we're all asking ourselves, what do you think
• 14:34
  Speaker 1: about finance? Um c Z is pretty cool to interview.
• 14:40
  Speaker 1: We have him on the network. Sometimes. He actually used
• 14:43
  Speaker 1: to work at Bloomberg. Um. He's got to be one
• 14:45
  Speaker 1: of the richest people in the world now and he
• 14:49
  Speaker 1: has his own coin that's one of the biggest. C
• 14:53
  Speaker 1: Z is just an edge vacational machinal. Every time he speaks,
• 14:56
  Speaker 1: I shut up and I listened. The key thing I
• 14:59
  Speaker 1: think he repped resents Matt is there's a lot of very,
• 15:02
  Speaker 1: very wealthy young people in the space, and they have
• 15:05
  Speaker 1: a major inclination to make the world a better place.
• 15:08
  Speaker 1: Don't underestimate that. That's the key thing I got out
• 15:10
  Speaker 1: of bitcoin. Everybody here wants to make a world a
• 15:14
  Speaker 1: better place, and they have the facility, capacity and money
• 15:17
  Speaker 1: to do it in this space. And now that the
• 15:20
  Speaker 1: US is counting China by accepting and um properly regulating cryptos,
• 15:24
  Speaker 1: they have a major platform. So to me, this is
• 15:27
  Speaker 1: a bull market. No many questions when and where do
• 15:29
  Speaker 1: you jump on? And I think that's what every money
• 15:30
  Speaker 1: manager in the planet is saying. Okay, I might as
• 15:32
  Speaker 1: well get off zero, and I think that's what's happening.
• 15:34
  Speaker 1: The greater risk is being on zero with allocations to
• 15:36
  Speaker 1: cryptos in bitcoins, Okay, help me out here. Because of
• 15:39
  Speaker 1: this inflation hedge aspect of this. You know, crypto people
• 15:43
  Speaker 1: so many inherently um you know with skeptical of the Fed.
• 15:48
  Speaker 1: Do you can you poke a hole in the inflation
• 15:50
  Speaker 1: hedge theory? Well, I think the key things can always
• 15:53
  Speaker 1: look at it. You can't hold gold anymore without having
• 15:56
  Speaker 1: some bitcoin and the theorum in that bucket because bitcoins
• 16:00
  Speaker 1: clearly replacing it. Now as far as you measure inflations
• 16:02
  Speaker 1: use the currency debasement. Let's look at this month so far.
• 16:05
  Speaker 1: On the month, bitcoins about about ten percent right now,
• 16:08
  Speaker 1: goals up about four and and crudels down one person.
• 16:12
  Speaker 1: I think by this time next year, the key, the bigger,
• 16:14
  Speaker 1: bigger risk will be deflationary trends. And I pointed out
• 16:17
  Speaker 1: clearly because it's measured on a twelve month basis. The
• 16:19
  Speaker 1: Bloomberg because of crypto and I'm sorry, I'm sorry. The
• 16:22
  Speaker 1: Bloomberg Command Index just reaching all time high twelve months
• 16:25
  Speaker 1: and now it's a real high bar to beat. So
• 16:27
  Speaker 1: and you just measure on a twelve month basis, deflationary
• 16:30
  Speaker 1: trends will kick back in if also needs a little
• 16:33
  Speaker 1: wobble in the stock market, and you'll see those deflation
• 16:36
  Speaker 1: near trends come back and the FED will have to ease.
• 16:38
  Speaker 1: And that's what bitcoin is. It's no one's project, no
• 16:40
  Speaker 1: one's liability. Declining supply, increasing demand. Even goal has elastic supply,
• 16:46
  Speaker 1: Bitcoin doesn't have that, and people understanding WHOA Okay, I
• 16:49
  Speaker 1: might as well get some allocation to this. So the
• 16:51
  Speaker 1: inflation argument, I think it's coming, but be wonderful if
• 16:54
  Speaker 1: we get true inflation and real demand pull right now.
• 16:57
  Speaker 1: To me, this is the kind of when you hear
• 16:58
  Speaker 1: headlines like to that that's where you back the peak
• 17:00
  Speaker 1: A year from now. I fully predict we're gonna have
• 17:03
  Speaker 1: more problems with deflationary trends. What when do we know that? Um,
• 17:09
  Speaker 1: you know mom and pop, either retail mom and pop
• 17:13
  Speaker 1: or institutions have fully embraced crypto. Because these are I
• 17:17
  Speaker 1: think two things we're still waiting for. Snelly and I
• 17:20
  Speaker 1: spoke with the conservative fund manager earlier who is just
• 17:24
  Speaker 1: not down to clown because he thinks there's too much volatility. Absolutely,
• 17:29
  Speaker 1: there will be less alto when there's greater depth than
• 17:31
  Speaker 1: the market reaches a higher plateau. So that's one key
• 17:33
  Speaker 1: thing is probably're gonna miss a big monoch appreciation. The
• 17:36
  Speaker 1: answer to that question, Matt, is very simple. When we
• 17:38
  Speaker 1: have wide dissemination of an e t S or e
• 17:41
  Speaker 1: t S that track a broad index attracts the crypto market,
• 17:45
  Speaker 1: that's where we're going. It's a matter of time. The
• 17:47
  Speaker 1: SEC knows it. If they're truly on to protect investors,
• 17:50
  Speaker 1: they need to approve an e t F to tracts.
• 17:51
  Speaker 1: A spot index attracts a spot markets, not you know,
• 17:54
  Speaker 1: Bitcoin and SAM and index. That's the proper. That's why
• 17:57
  Speaker 1: we hate most almost everybody in the planet. Tracks stocks
• 18:00
  Speaker 1: go through NT. You have two tracks, an index. We'll
• 18:02
  Speaker 1: get there. It's going to be many years, will be
• 18:04
  Speaker 1: many bumps on the road, But until then, I don't
• 18:07
  Speaker 1: think we're gonna have anything but a bull market that
• 18:09
  Speaker 1: has dips. Alright, Mike mcglogan, thanks very much for joining us.
• 18:12
  Speaker 1: Mike mcglonan their senior commodity strategist with Bloomberg Intelligence talking
• 18:16
  Speaker 1: to us about KRYP Bloomberg Opinion informed perspectives and expert
• 18:22
  Speaker 1: data driven commentary on breaking news. Alright, time for Bloomberg Opinion.
• 18:28
  Speaker 1: We have our debt markets columnists Brian Hippata in the
• 18:31
  Speaker 1: studio today at the Interactive Brokers Um complex inside one
• 18:38
  Speaker 1: Lexington Avenue, the mother Ship as we call it. He's
• 18:40
  Speaker 1: writing about the FED ignoring a key bubble risk for
• 18:45
  Speaker 1: the stock market or maybe can I say bubbles plural? Brian,
• 18:49
  Speaker 1: Sure you can say that crypto, but they're not saying it. No,
• 18:52
  Speaker 1: they don't use the word bubble. No, I mean they
• 18:55
  Speaker 1: don't say bubble. They didn't say that may even though
• 18:57
  Speaker 1: they flagged a lot of financial stabild be concerns. And
• 19:01
  Speaker 1: the thing they don't really talk about a lot is
• 19:03
  Speaker 1: real yields. And that is something that you just see
• 19:06
  Speaker 1: written about over and over, talked about over and over.
• 19:08
  Speaker 1: You see real rates hit record lows and there's basically
• 19:11
  Speaker 1: no choice but to to buy risky assets because your
• 19:14
  Speaker 1: alternative is that you buy fixed income, you buy treasuries,
• 19:17
  Speaker 1: and you get a negative inflation adjusted yield. It doesn't
• 19:20
  Speaker 1: seem worth it to a lot of people. And what
• 19:22
  Speaker 1: pops the bubble? I mean, that's a good question. I mean,
• 19:25
  Speaker 1: I think right now you're seeing inflation go up tremendously
• 19:29
  Speaker 1: uh and you're seeing stocks barely off there they're all
• 19:32
  Speaker 1: time highs. So it's not clear what exactly happens the
• 19:35
  Speaker 1: FEDS reaction function, right now is to just look through
• 19:38
  Speaker 1: this inflation keep keep their Fed funds rate at at
• 19:42
  Speaker 1: record lows. UM it's at the lowest since the nineteen
• 19:45
  Speaker 1: seventies when you adjusted for inflation the Fed funds rates.
• 19:48
  Speaker 1: So so rates are staying really low, and it's going
• 19:51
  Speaker 1: to be a question of whether the Fed blinks, whether
• 19:53
  Speaker 1: they flinch under political pressure. I think, uh to to
• 19:57
  Speaker 1: do something to to slow inflation down. Next year's the
• 20:00
  Speaker 1: crucial midterm elections. After all, the seventies were bad. By
• 20:03
  Speaker 1: the way, Sinale, for those of you who weren't there,
• 20:06
  Speaker 1: I'm gonna remind you that's when the Mustang turned from
• 20:09
  Speaker 1: a boss muscle car into an embarrassment. Plus we had
• 20:15
  Speaker 1: incredible inflation. There were uh, you know, people parked around
• 20:19
  Speaker 1: the block waiting to get gasoline. Oil prices went nuts,
• 20:22
  Speaker 1: and as Greg Jarrett was just saying, his mortgage was
• 20:25
  Speaker 1: like four yeah, I mean because the Fed had to
• 20:29
  Speaker 1: raise rates, right, and now you get a mortgage for
• 20:31
  Speaker 1: three basically, So, uh, nominal rates are still extremely low,
• 20:36
  Speaker 1: and that does raise this risk that if you can't
• 20:38
  Speaker 1: get anything in fixed income, you have to go to
• 20:41
  Speaker 1: the stock market. Some of these statistics that I cited
• 20:44
  Speaker 1: from them from the FED Zone data is that you
• 20:47
  Speaker 1: look at people who are sixty to seventy four, even
• 20:49
  Speaker 1: though seventy five and older, and stockholdings have never before
• 20:52
  Speaker 1: been such a core part of their portfolio because after
• 20:55
  Speaker 1: a decade of near zero interest rates, uh, you just
• 20:58
  Speaker 1: can't count on fixed income anymore, even even if you're
• 21:01
  Speaker 1: in retirement. Well yeah, I mean the other thing about
• 21:03
  Speaker 1: this too, is that the market is already expecting some
• 21:06
  Speaker 1: like they're they're they're planning for rate hikes next year. Right,
• 21:09
  Speaker 1: That's what's the plan. Right. But the thing is, what
• 21:11
  Speaker 1: about this idea that Mary Daily had brought up to
• 21:14
  Speaker 1: our own Mike McKee a little bit earlier, This idea
• 21:17
  Speaker 1: that we're still in COVID this is going to be transitory.
• 21:20
  Speaker 1: I mean that seems to be the parting line from
• 21:23
  Speaker 1: most beneficials. But how do you know that? Yeah? I
• 21:28
  Speaker 1: mean one of the things, Um, I don't think this
• 21:30
  Speaker 1: is spoiling anything because I tweeted about it. If I
• 21:32
  Speaker 1: do have a column coming out pretty soon, I mean,
• 21:34
  Speaker 1: you look at um this idea that uh the inflation
• 21:37
  Speaker 1: guy on Twitter um basically came out and said, um,
• 21:41
  Speaker 1: I'm looking for an outlier in this inflation data and
• 21:44
  Speaker 1: I can't find one, and that's a scary thing. And
• 21:47
  Speaker 1: the idea that it's just COVID and that things are
• 21:50
  Speaker 1: just going to come out right, that's the scale, not
• 21:52
  Speaker 1: the length. Yeah, I mean, I think the question is
• 21:55
  Speaker 1: is can you just blame used cars again? Um, some
• 21:57
  Speaker 1: people might try to, but I think it's starting to
• 22:00
  Speaker 1: feel as if there's more broad based price pressure. And
• 22:03
  Speaker 1: you look at the New York Fed statistics on consumer
• 22:06
  Speaker 1: expectations for inflation. Three year inflation expectations still at a
• 22:10
  Speaker 1: series high. One year expectations still going up over five
• 22:13
  Speaker 1: percent now, Um, so it's getting baked into the cake
• 22:17
  Speaker 1: a little bit here. Uh, in terms of inflation expectations.
• 22:19
  Speaker 1: The Fed has talked about how they wanted to get
• 22:21
  Speaker 1: inflation expectations up because they want to be able to
• 22:24
  Speaker 1: conduct monetary policy about the zero lower abound, and they're there,
• 22:28
  Speaker 1: and yet we're still at zero. And so I think
• 22:30
  Speaker 1: the question has to become at a certain point, why
• 22:33
  Speaker 1: is zero the baseline for the Fed funds rate? And
• 22:36
  Speaker 1: that all comes back to the real yields when you
• 22:38
  Speaker 1: see them so deeply negative, that's because the Fed funds
• 22:41
  Speaker 1: rate is held at stare not expected to go out.
• 22:43
  Speaker 1: You know, real wage growth is even more of a
• 22:45
  Speaker 1: problem because inflation is growing at a faster pace than
• 22:50
  Speaker 1: wages are. So you know, even if this is transitory,
• 22:54
  Speaker 1: if it all stops at the same time, the stuff
• 22:57
  Speaker 1: that I need is still cost is costing more than
• 23:01
  Speaker 1: what I'm getting paid, and that's going to continue to
• 23:04
  Speaker 1: increase unless they can turn it around. The problem that
• 23:07
  Speaker 1: that I have is I don't see what the FED
• 23:09
  Speaker 1: can do about inflation that's caused by supply constraints. Monetary
• 23:13
  Speaker 1: policy doesn't help, right, I mean, the question ultimately has
• 23:16
  Speaker 1: to be is it the Fed's job to constrain demand? Right?
• 23:20
  Speaker 1: If you have demand at a super elevated level and
• 23:22
  Speaker 1: supply is not what they want to there? Right, that's
• 23:25
  Speaker 1: the surgeon who declares his job of success because the
• 23:28
  Speaker 1: patient is dead. In some ways, yes, but in stuff
• 23:31
  Speaker 1: I said that, right, Well, you know, I think I
• 23:33
  Speaker 1: get it. I don't want to really think about surgeons
• 23:35
  Speaker 1: killing anyone, but but I but I think I get it.
• 23:38
  Speaker 1: But the point is is if demand is running so hot,
• 23:42
  Speaker 1: should the FED cut back a little bit? And John
• 23:46
  Speaker 1: Powell said that current inflation is not at all consistent
• 23:49
  Speaker 1: with price stability, and price stability is one of the
• 23:53
  Speaker 1: Fed's mandates from Congress. Boring for just a second here,
• 23:56
  Speaker 1: I mean, if you're a saver, you're getting decimated unless
• 24:00
  Speaker 1: you're investing in serious eyes savings bonds which are linked
• 24:03
  Speaker 1: to inflation and give a seven point one interest rate,
• 24:07
  Speaker 1: which we which our wealth team wrote about recently. Well,
• 24:09
  Speaker 1: how many people are actually doing that? Not a lot? Yeah,
• 24:12
  Speaker 1: And that's what I'm coming down to also, Right, if
• 24:15
  Speaker 1: you are in our generation, if you're a millennial or
• 24:18
  Speaker 1: Gen Z and interest rates are this low, and even
• 24:21
  Speaker 1: with the rate hike, they're not you know, you're not
• 24:23
  Speaker 1: going to get a fourteen percent mortgage anytime soon. So
• 24:26
  Speaker 1: what what to make of that? Of this new environment? Yeah,
• 24:29
  Speaker 1: I mean that's goes back to the stock You know,
• 24:32
  Speaker 1: you want to call it a bubble, you don't want
• 24:33
  Speaker 1: to call it a bubble, But ultimately more people are
• 24:36
  Speaker 1: invested in stocks than ever before. And the reason why
• 24:40
  Speaker 1: it seems to be because there is no alternative to
• 24:43
  Speaker 1: use the often used enough phrase, right, I mean, but when,
• 24:47
  Speaker 1: but when it comes down to it, if the FED
• 24:49
  Speaker 1: is concerned about elevated asset prices, elevated stock prices. It's
• 24:53
  Speaker 1: because its policies have pushed people into those various instruments,
• 24:58
  Speaker 1: and as a result, it's policy is also dictated by
• 25:02
  Speaker 1: the stock market to a greater extent. You saw what
• 25:04
  Speaker 1: happened in eighteen There was a big decline at the
• 25:07
  Speaker 1: end of the year, and pal pivoted in January immediately
• 25:12
  Speaker 1: and went to rape cuts. Um. So there is this
• 25:15
  Speaker 1: feeling of the push and pull and it feels tenuous,
• 25:17
  Speaker 1: but people don't really know what else they can do,
• 25:20
  Speaker 1: and so you've got this situation that feels uh, feels tenuous. Um.
• 25:25
  Speaker 1: And there's really no other way to put it, all right, Brian,
• 25:27
  Speaker 1: thanks so much for joining us. Brian Jrpota there rights
• 25:29
  Speaker 1: for Bloomberg. Thanks for listening to the Bloomberg Markets podcast.
• 25:33
  Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
• 25:37
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
• 25:41
  Speaker 1: on Twitter at Matt Miller three. Put on ball Sweeney
• 25:45
  Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast. You
• 25:47
  Speaker 1: can always catch us worldwide at Bloomberg Radio.