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Boris Johnson, The Yen, And The Fed (Podcast) · 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
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Lots of interesting news
0:24
Speaker 1: coming out of the UK. Prime Minister Boris Johnson steps down,
0:29
Speaker 1: so of course my question is what's next? And I
0:32
Speaker 1: honestly don't know, but our next guest does. John Author's
0:36
Speaker 1: senior editor for Bloomberg Opinion. John. It's not like they
0:39
Speaker 1: got a vice premiere just sitting there waiting to take over.
0:43
Speaker 1: They do. Do they have a vice premiere? And what
0:45
Speaker 1: does this vice premiere? Do you want me to answer
0:49
Speaker 1: that question that there's a there is a title of
0:52
Speaker 1: depty prime Minister which has no constitutional significance. Okay, well,
0:58
Speaker 1: given in the PA, there's a stop too disappointed office seekers.
1:05
Speaker 1: In this case, Dominic rob who at one point got
1:11
Speaker 1: as far as in the Foreign Secretary, was named as
1:16
Speaker 1: his deputy by Boris two or three years ago and
1:20
Speaker 1: then did actually formally act up when, as he remembered,
1:24
Speaker 1: U Boris had to go to the ICU with COVID.
1:28
Speaker 1: He has says he's not running. He really wouldn't, Dominic
1:32
Speaker 1: rob has, and he would have very little chance of
1:34
Speaker 1: winning anyway. So there is this availability of he is
1:40
Speaker 1: a convenient guy that they can tap to be a
1:44
Speaker 1: caretaker prime minister, given that a lot of Conservatives now
1:48
Speaker 1: one Boris out of swift leest by the way it possible, John,
1:52
Speaker 1: at this point we should make clear to those who
1:56
Speaker 1: aren't Brits or political scientists that it's a system where
2:00
Speaker 1: you vote for the party, not the person. Right. So um, yes,
2:04
Speaker 1: someone asked me earlier, how can Boris leave and be
2:07
Speaker 1: replaced by a Tory leader. Doesn't the opposition get to
2:10
Speaker 1: step in now or don't they have a general election?
2:12
Speaker 1: And that's not the case. No, no, no, he's been arguing,
2:17
Speaker 1: And I think this shows personally who chose that he
2:20
Speaker 1: really doesn't quite understand the ways his own country's political
2:24
Speaker 1: way of doing things. That he has a mandate. Certainly,
2:29
Speaker 1: his popularity his personality helped the Conservatives win the nineteen
2:34
Speaker 1: general election. That's true, but no, he does not have
2:38
Speaker 1: a personal mandate each individual MP has a mandate to
2:43
Speaker 1: vote for somebody to be prime minister as they see fixed.
2:46
Speaker 1: There's plenty of examples in British history of prime ministers resigning,
2:53
Speaker 1: standing down between elections and their the MP's in their party.
2:59
Speaker 1: Tuesday somebody, it was one of the most famous ones,
3:06
Speaker 1: Blair and pretty Blair standing there for Gordon Brown and
3:10
Speaker 1: then both the last two Conservative prime ministers took over
3:14
Speaker 1: in mid term without general electure, both to reason and
3:18
Speaker 1: and Boris himself. So there's nothing there's nothing unusual about
3:22
Speaker 1: about about a prime minister standing down and being replaced
3:26
Speaker 1: by his party. How about the whole concept of the
3:28
Speaker 1: caretaker prime minister? Is that just a function of what
3:33
Speaker 1: popularity you have left whether you can remain a caretaker
3:36
Speaker 1: p m ntil there's another election. I know he's Rob
3:41
Speaker 1: is not going to be a leader to to go
3:44
Speaker 1: into the election. No, I think Paul means Johnson wants
3:48
Speaker 1: to stay as the prime minister Protram until yes he does.
3:53
Speaker 1: And I my opinion, my judgment from you know, from Afar,
3:59
Speaker 1: but I don't think he's going to be allowed to
4:01
Speaker 1: do that. UM. Basically the problem for him and the
4:07
Speaker 1: fact that he showed really no contrition. Never used the
4:11
Speaker 1: word sorry in his speech earlier. The problem for him
4:15
Speaker 1: is that this isn't about some policy disagreement or some
4:20
Speaker 1: political defeat. It's about the over majority of his colleagues saying,
4:25
Speaker 1: we don't trust you. You are not personally honest enough
4:29
Speaker 1: to be our leader. It's not even the economy is stupid.
4:32
Speaker 1: They just think he's a liar. Exactly we we we
4:35
Speaker 1: don't trust you, You're a liar. Go And in these circumstances,
4:40
Speaker 1: if the basis f you're saying, Theresa May can carry
4:45
Speaker 1: on until they chosen a new leader. If she's resigned
4:47
Speaker 1: because they know people don't trust her to to make
4:52
Speaker 1: a Brexit deal, so she's a terribly weakened position, but
4:55
Speaker 1: she can carry on being the Prime minister until the
4:58
Speaker 1: new guy gets David Cameron can announce his resigning as
5:02
Speaker 1: soon as the referendum happens, but not actually stand down
5:06
Speaker 1: until they've chosen somebody new. But in this case it's
5:09
Speaker 1: not clear that you can do that because it's nothing
5:13
Speaker 1: about politics per se. It's about you personally shouldn't be
5:18
Speaker 1: the Prime minister. You are not for this job, and
5:21
Speaker 1: we don't trust you, which is a remarkable state of affairs,
5:26
Speaker 1: but it does make it difficult for conservative in peace
5:30
Speaker 1: to serve answer and for the for a matter of months,
5:33
Speaker 1: especially if THEE doesn't want to step up. Now you've
5:35
Speaker 1: got to figure out who. So it leaves a lot
5:37
Speaker 1: of questions, um unanswered, John, just quickly on the market.
5:41
Speaker 1: We've only got about thirty seconds, are we Is this
5:44
Speaker 1: rally like a reverse ferret here? What's going on? But
5:49
Speaker 1: rally in the pounds or no? No? In in markets?
5:52
Speaker 1: I mean do we just don't. We don't believe the
5:54
Speaker 1: FED is going to fight inflation more than a recession.
5:58
Speaker 1: I think basically there was an immense shock created by
6:05
Speaker 1: the pandemic, which has created a much shorter economic cycle
6:08
Speaker 1: than usual, And there is an immense shock created by
6:11
Speaker 1: the fact that at this point nobody is sure they
6:13
Speaker 1: really do believe the feds guidance after two reverse ferrets
6:17
Speaker 1: by the FED uh in quick succession. Therefore, it's a
6:22
Speaker 1: natural consequence of the market will gine call over the place?
6:26
Speaker 1: All right? I don't. I don't think there is any
6:29
Speaker 1: clear cut reason to think that, yeah, the FED will
6:34
Speaker 1: fold any more than there was for respect. I recommend
6:37
Speaker 1: to listeners who are wondering what the heck a reverse
6:40
Speaker 1: faret is. Yes, to go on Bloomberg dot com and
6:43
Speaker 1: read John's column. Or if you have a Bloomberg terminal
6:45
Speaker 1: in front of you, type ni authors and you can
6:47
Speaker 1: read a reverse ferret gets up markets trousers by John Authors.
6:57
Speaker 1: Now we're bringing Massa Takeda. He's a portfolio manager for
7:00
Speaker 1: the Hennessy Japan Fund and this has been, uh, to
7:04
Speaker 1: my mind, one of the most interesting stories that doesn't
7:08
Speaker 1: get the coverage it deserves. Let's give it. The Bank
7:11
Speaker 1: of Japan is insistent that it's gonna hold rates to
7:16
Speaker 1: a quarter percent or lower, and the market mr market
7:20
Speaker 1: is testing them out. Now traditionally this trade is called
7:25
Speaker 1: the widow maker. You short jgbs, you short the end,
7:32
Speaker 1: and so many investors have gotten burned that it's earned
7:36
Speaker 1: that moniker Massa Takeda, Are you one of those investors
7:40
Speaker 1: that's trying this again? Uh No, I'm just make fenty
7:46
Speaker 1: vibes to conclupanies. Well, what do you think about the
7:50
Speaker 1: Bank of Japan's will to hold out against the market?
7:53
Speaker 1: I mean, can they keep it uh pegged it a
7:56
Speaker 1: quarter percent? Or will they have to let it slide
7:59
Speaker 1: like the Swiss National Ank did a couple of years ago.
8:02
Speaker 1: Um well, it's hard to tell, but it seems like
8:05
Speaker 1: a plank of plan is they're very much committed to
8:07
Speaker 1: the zero right policy and we have to control um.
8:10
Speaker 1: Now they're in a dilemma. Obviously, if they choose to
8:14
Speaker 1: raise rates, then of course it's going to hurt the economy.
8:18
Speaker 1: We're just you know, coming out of the pandemic. Um.
8:20
Speaker 1: So it's there's still their fragile um if they don't
8:25
Speaker 1: choose to raise rates. But then um, the yam will
8:28
Speaker 1: continue to depreciate on lightening interest rate differential, and that's
8:32
Speaker 1: going to also drive inflation for the so and that
8:37
Speaker 1: that inflation isn't going to be good for the equality either.
8:40
Speaker 1: So a BAN, I think it is a very tricky
8:42
Speaker 1: situation right now. Um So that's that's that's my take
8:45
Speaker 1: on just just pointing out right now we're at a
8:47
Speaker 1: hundred thirty five seventy two, which is we're having around
8:50
Speaker 1: the low. The last time we saw this was you know,
8:55
Speaker 1: long term capital management, yep, exactly. I'm looking at the
8:57
Speaker 1: one year chart for the Japanese end. We started the
8:59
Speaker 1: year are year ago twelve months ago. What about one
9:01
Speaker 1: ten UH now are one thirty five such as significant weakening?
9:05
Speaker 1: Must I love to get just your overview based upon
9:07
Speaker 1: your experience of the folks you talked to in Japan.
9:11
Speaker 1: How has the pandemic impacted Japan just broadly defined, and
9:15
Speaker 1: how has it impacted the economy and and how are
9:18
Speaker 1: folks they're dealing um. Obviously economy was severely damaged and UM.
9:25
Speaker 1: And also it has been not as resilient as as
9:29
Speaker 1: we hoped it as we hoped UM and still enhanced.
9:33
Speaker 1: The economy is in a very fraudule the state. So
9:37
Speaker 1: as a call photo manager, I mean I'm a I'm
9:39
Speaker 1: a japan UM photo manager. But my UH investment style
9:46
Speaker 1: is to invest in great companies that have global footprints.
9:49
Speaker 1: So trying not to put all our eggs in one basket, um,
9:52
Speaker 1: you know, one geography UM and they loven't great companies
9:55
Speaker 1: out there in Japan that have a strong presence UM worldwide.
10:00
Speaker 1: And if if there's going to be you know, a
10:01
Speaker 1: strong uptake in Japan, our port companies should also benefit
10:04
Speaker 1: from it. So that's my sort of defensive investment strategy
10:08
Speaker 1: at the moment. So talk to us about maybe some
10:10
Speaker 1: names that might fit that. Uh, you know the kind
10:14
Speaker 1: of framework that you're you and your team are doing
10:16
Speaker 1: some work on right now. Yeah. So you know, our
10:20
Speaker 1: our investment mantra is to invest in great business with
10:23
Speaker 1: exceptional management attractive class. So, um, you know we uh
10:29
Speaker 1: growth growth manager. We're in the growth management bucket. And
10:33
Speaker 1: obviously a market rotation from growth of value has been
10:36
Speaker 1: has taken a toll on us. Um that we continuously
10:39
Speaker 1: remain invested in in our long term holdings and growth needs.
10:43
Speaker 1: But at the same time, we've been actively searching for
10:46
Speaker 1: what I would call growth names in disguise, and what
10:48
Speaker 1: I mean by that is companies whose growth prospects are
10:52
Speaker 1: just as strong as any pure growth name. We're talking
10:54
Speaker 1: about learning, throw a Group, Campus and plus, but they're
10:58
Speaker 1: trading out of value stuff about multiples due to its
11:00
Speaker 1: perceptions in the market. And I would highlight the Touch
11:02
Speaker 1: as an example. And then there's another example, another type
11:05
Speaker 1: of growth in disguise where growth growth earn if growth
11:10
Speaker 1: rate might be in the med single digits, but they
11:13
Speaker 1: come with significant ability to buy back shares and sub
11:16
Speaker 1: division news and if you add am all up, you
11:18
Speaker 1: can plus return as a showholder. And I would highlight
11:22
Speaker 1: general insurance companies as as as primary example. I just
11:25
Speaker 1: want to quickly ask you about the election House of
11:27
Speaker 1: Counselor's election on Sunday. What are the market implications of that? Uh?
11:32
Speaker 1: What could they be? Well, it seems like the ruling
11:37
Speaker 1: party is going to win the majority ships um and UM.
11:42
Speaker 1: I think you know right now Prime Minister Kishi Daum
11:47
Speaker 1: he's been promoting the so called Japan's New capitalism and
11:51
Speaker 1: the market was once in spooks by the prospects of
11:56
Speaker 1: Kishida potentially introducing not to shareholder not extridly. Um. Policing
12:02
Speaker 1: is just like higher how about the games tax ridge
12:05
Speaker 1: and middle on bridge hikes. Um. So depending on what
12:08
Speaker 1: policy imagers will will come out going forward, they may
12:10
Speaker 1: have some many percussions in the market, but I would
12:13
Speaker 1: look at it more positively. There. You know, this is
12:16
Speaker 1: really a mark to shift from showhold of friendly capitalism
12:19
Speaker 1: to sustainable growth capitalism. So um, you know we should
12:23
Speaker 1: take it as a positive movement. All right, Massa, thank
12:26
Speaker 1: you so much for joining us there. Massa takeda portfolio
12:29
Speaker 1: manager for the Hennessy Japan Fund, getting an update on
12:33
Speaker 1: the developments out of Japan, and again elections matches pointed
12:37
Speaker 1: out coming up out in sun Valley, Idaho at this
12:44
Speaker 1: time of year. Every year, the good friends at Allen
12:47
Speaker 1: and Company, the investment bank hold their conference. Were all
12:50
Speaker 1: the big tech media, telecom, really cool kids gather uh
12:57
Speaker 1: to just talk deals, talk business, talk, what's going on
12:59
Speaker 1: in the world, and of course we send out our
13:02
Speaker 1: ace reporter. Ed Ludlow is a West Coast correspondent for
13:05
Speaker 1: Bloomberg News. Ed, you're in sun Valley. You probably went
13:08
Speaker 1: to the Soul last night for a couple of cocktails.
13:11
Speaker 1: Hopefully you bumped into some media moguls. But what are
13:14
Speaker 1: you hearing out there in beautiful sun Valley? What's the
13:16
Speaker 1: theme kind of this year? Yeah, you know, Tom Keating
13:20
Speaker 1: just framed it as the Ludlow Humility Meter there television,
13:25
Speaker 1: and at first I thought, oh goodness, here we go.
13:28
Speaker 1: But then you know, that is pretty appropriate that all
13:31
Speaker 1: the conversations I'm having on the record on boom Bow
13:34
Speaker 1: Television and in the corridors behind the scenes, is that
13:37
Speaker 1: there's kind of dis acceptance of the world is very
13:39
Speaker 1: different from twelve months ago and pre pandemic. There's public
13:43
Speaker 1: market volatility, you know, there's zeroed in on the inflation story, recession.
13:48
Speaker 1: But you know, everyone is quite bullish here. You know,
13:51
Speaker 1: there's a lot of optimism. They're clearly enjoying each other's company.
13:54
Speaker 1: But remember this is a TMT conference where the focus
13:57
Speaker 1: is deals and meeting your clients, your customers, your bankers,
14:01
Speaker 1: and everyone is kind of acknowledging the problems out in
14:04
Speaker 1: the world but saying there are real opportunities in these
14:07
Speaker 1: sectors to deploy capital. And I think that's really interesting.
14:11
Speaker 1: So what are the biggest deals that we're looking at
14:13
Speaker 1: right now? What are people talking about there? You know,
14:15
Speaker 1: I think the valuations have come down a lot, particular
14:18
Speaker 1: in media and telecoms companies, right you know, the big
14:21
Speaker 1: king of the hill is the phrase I used this
14:23
Speaker 1: year is is Warner Brow's Discovery CEO David Doust laugh,
14:27
Speaker 1: you know that merger was successful. Um, he is kind
14:31
Speaker 1: of point and optimistic. And it's funny because last year Netflix,
14:36
Speaker 1: Read Hasting S Sanda Rose were kind of those star
14:39
Speaker 1: people that everyone wanted to be too. But there's this
14:41
Speaker 1: idea that valuations have come down. The consumer has so
14:44
Speaker 1: much choice on the streaming side, and you do wonder
14:47
Speaker 1: whether there will be further consolidation. One really interesting point
14:50
Speaker 1: some sources made me last night, and by the way,
14:52
Speaker 1: I did go to the Pioneer Saloon. It was excellent. Saturday,
14:57
Speaker 1: according to sources, is the day that a lot of
15:00
Speaker 1: the smallest startups and interesting founders have been invited present.
15:05
Speaker 1: And one source, a long time attendy and investor, said
15:07
Speaker 1: to me that he actually invested, has invested over the
15:11
Speaker 1: years in many of those startups that present on the Saturday.
15:14
Speaker 1: You know, they're all kinds of people from healthcare, biotech, transport, mobility, tech,
15:21
Speaker 1: and they get an opportunity to stand in front of
15:23
Speaker 1: this just incredible room of people and make their pitch
15:26
Speaker 1: behind closed doors. And I'm told with absolute certainty that
15:30
Speaker 1: the twelve months that follow a lot of those guys
15:32
Speaker 1: do receive investments, you know. And one of the speakers
15:36
Speaker 1: that I think a lot of folks are in participating
15:39
Speaker 1: hearing from, assuming he shows up as Elon Musk because
15:43
Speaker 1: there's a big, big m and a trade out there
15:46
Speaker 1: that he's involved in with Twitter, that is really you know,
15:49
Speaker 1: nobody knows whether this thing is going to go through
15:51
Speaker 1: or not, and nobody really knows what he's thinking anywhere.
15:54
Speaker 1: I mean, I don't know, So we'd love to hear
15:56
Speaker 1: from Mr musk Is that's still the plan to as
16:00
Speaker 1: a former m and a banker in the TMT space,
16:04
Speaker 1: if someone if the richest man in the world made
16:07
Speaker 1: an offer for a company at would you expect it
16:10
Speaker 1: to be trading at thirty nine? No? Absolutely not, And
16:14
Speaker 1: so that kind of tells you the market's telling you're
16:16
Speaker 1: right there that it's they don't view it as a
16:17
Speaker 1: credible deal. But what do you expect to hear ed
16:20
Speaker 1: from Elon musk Iffen when he shows up? So sources
16:24
Speaker 1: tell me that he is showing up. We're not sure
16:26
Speaker 1: when we thought it would be today Thursday. Sources also
16:29
Speaker 1: tell me that he is making the Saturday prime time
16:34
Speaker 1: address and now that's that's a slot usually reserved for
16:38
Speaker 1: one Warren Buffett traditionally at the Allen and Co. Conference.
16:42
Speaker 1: So I thought that was interesting. Um, wait, Warren Buffett
16:45
Speaker 1: like always does it. Warren Buffett traditionally speaks on the
16:49
Speaker 1: Saturday and you know the Oracle of Omaha, it's his
16:52
Speaker 1: moment where he gives his world view behind closed doors.
16:55
Speaker 1: You know a lot of Allen and Co. Attendees I've
16:57
Speaker 1: spoken to in private say, you know, this is why
16:59
Speaker 1: people stay through the weekend. You know this is this year.
17:02
Speaker 1: By the way attendees are allows bring their families. You
17:05
Speaker 1: have the extra added issue of childcare and keeping people
17:08
Speaker 1: entertained in one of the most beautiful spots on Earth.
17:10
Speaker 1: It's very hard. It's a serious issue for Elon Musk,
17:13
Speaker 1: now right with nine childious issue. We'll get to that
17:17
Speaker 1: that basically, you know, I have spoken to people about it.
17:20
Speaker 1: They are talking about it in the corridors. Ned SEAgel
17:22
Speaker 1: Twitter CFO is here. I asked him. I shouted at him, frankly,
17:27
Speaker 1: are you going to meet with Elon? And he smiled
17:29
Speaker 1: and put his index finger in the air showing one digit.
17:33
Speaker 1: But and you know I took that to mean one
17:36
Speaker 1: time he'll meet with him. I have no idea what
17:38
Speaker 1: he was saying. We haven't seen Tara Gagl who's the
17:41
Speaker 1: Twitter CEO. I have had a number of conversations people
17:44
Speaker 1: that say Elon Musk can't get out of this. The
17:48
Speaker 1: reverse termination fee is a distraction. You can't bank on
17:51
Speaker 1: him just being able to pay a billions dollars to
17:53
Speaker 1: walk away. One source made a really interesting point. If
17:57
Speaker 1: your Twitter and you want to fight this. To Belon
17:59
Speaker 1: Musk walks away, you really going to go to court
18:01
Speaker 1: for a decade, you know, because that's how long it
18:03
Speaker 1: could take. So I think the consensus here is that
18:05
Speaker 1: he could come in with a lower offer price. And
18:07
Speaker 1: if your Twitter share if you're an existing Twitter shareholder,
18:12
Speaker 1: you would bite somebody's hand off for that deal any
18:15
Speaker 1: time in the last two years, right, you just would
18:17
Speaker 1: like So I think that a lower price for those involved,
18:21
Speaker 1: just to get it done would be a good outcome
18:24
Speaker 1: based on what you know, the conversations I'm having. So,
18:28
Speaker 1: Elon Musk has another set of twins that we didn't
18:32
Speaker 1: know about, and apparently one of his kids has like
18:36
Speaker 1: disowned him. Really, so how many I guess nine unless
18:41
Speaker 1: you don't count um his one of his kids just
18:46
Speaker 1: changed her name you know, and gender and said she
18:52
Speaker 1: wants nothing to do with her father. Probably is this
18:56
Speaker 1: getting to no? Okay, So a lot to back here,
19:00
Speaker 1: But there was a business inside a report that Elon
19:02
Speaker 1: Musk had twins who are now eight months old, with
19:06
Speaker 1: the Neuralink employee, and that was discovered through court filings
19:10
Speaker 1: where the NEURALNK employee and Masque wanted to have the
19:14
Speaker 1: names changed so that it reflected the Musque name as well.
19:17
Speaker 1: But why didn't they just put that on the birth certificate.
19:19
Speaker 1: I don't get that. Usually when the kid's born, you
19:21
Speaker 1: just put the father's name down. And well, two things.
19:25
Speaker 1: I'm yet to be a father, But I also don't
19:28
Speaker 1: pretend to know what is going on inside. Elon must
19:31
Speaker 1: mind and the actions that he takes at any time. Um.
19:35
Speaker 1: But according if this report is to be believed them,
19:38
Speaker 1: you know, we've asked Musque about it. He hasn't replied.
19:41
Speaker 1: We've asked Neural Link about it, they haven't replied. Then
19:44
Speaker 1: Musk does currently technically have nine children? All right, We've
19:48
Speaker 1: got to keep up to date on that stuff. But
19:49
Speaker 1: that just came across. I mean, we don't, Actually we don't.
19:53
Speaker 1: It's silly, gossipy stuff. And I guess CEOs can have
19:56
Speaker 1: as many children as they want, just like a normal person. Um.
20:00
Speaker 1: And he has certainly got the money to support them. Well,
20:02
Speaker 1: he's got a he's got a policy. It's just fun
20:04
Speaker 1: to keep up with Elon. He thinks there needs to
20:06
Speaker 1: be more people on the planet, right, he says, yeah,
20:09
Speaker 1: Yet I saw a tweet from him today that said
20:13
Speaker 1: the US has been underpopulated for like fifty years, so
20:18
Speaker 1: it's against consensus. I think. All right, all right, Ed Ludlow,
20:22
Speaker 1: West Coast, corresponding Bloomberg News. He is our reporter on
20:26
Speaker 1: the ground in sun Valley. We get talked about Rivivian.
20:29
Speaker 1: Next time we get on, we gotta talk about Rivian.
20:31
Speaker 1: Yesterday they boosted their UH production target for the second quarter. Right,
20:35
Speaker 1: stop us up? Not good stuff, ed Lolo out there
20:37
Speaker 1: at sun Valley, Idaho. Let's get right to it. Danielle
20:43
Speaker 1: DeMartino Booth, CEO of Quill Intelligence, also at the Dallas
20:47
Speaker 1: FED for a while. So when we talk interest rates,
20:50
Speaker 1: when we talk FED, boom our go to choice here
20:53
Speaker 1: and daniel nothing says that we're getting back to normal
20:55
Speaker 1: than Danielle DeMartino Booth in our Bloomberg, in our actor
20:58
Speaker 1: broker studio. So what is the Fed? Wait? How was
21:00
Speaker 1: the flight? First of all, how is you travel? Because
21:02
Speaker 1: last time Paul came here from Texas, his flight was canceled.
21:05
Speaker 1: He was forced to stay at a water park all day. Yes, well,
21:09
Speaker 1: knock on wood because I've got to get on another
21:11
Speaker 1: flight tomorrow. But it was seamless now, but one in
21:13
Speaker 1: front of me was canceled because of no crew. That's
21:16
Speaker 1: the thing's all right. So what let's assume that there's
21:19
Speaker 1: a crew at the Federal Reserve. Are they going to
21:21
Speaker 1: raise fifty basis points? Seventy five basis points? What are
21:24
Speaker 1: you thinking? So two days after the FED announces, we're
21:28
Speaker 1: probably going to get our second negative print on personal consumption, expenditures,
21:32
Speaker 1: personal income, and spending comes out the Friday. At it's important,
21:35
Speaker 1: it's very important for it. In fact, they're likely to
21:37
Speaker 1: have that data in hand when they announced, and if
21:39
Speaker 1: it's negative, I would argue, counterintuitively that they're gonna go
21:43
Speaker 1: for seventy five basis points to get it into the can. Yeah.
21:46
Speaker 1: I actually have a bet right now with Paul and
21:48
Speaker 1: Ira Jersey. If they do seventy five, Paul has to
21:52
Speaker 1: drive me down to Princeton and Ira has to buy
21:54
Speaker 1: us dinner. I started feeling, honestly a little bit nervous
21:57
Speaker 1: about that bet yesterday reading these fedman it's that everyone
22:00
Speaker 1: said we're hawkish, and I got this feeling in my
22:04
Speaker 1: stomach like I could lose this bet. I don't know why,
22:06
Speaker 1: but it's not a sure thing. It's nothing is a
22:11
Speaker 1: sure thing, and I think that markets interpreted the minutes
22:14
Speaker 1: as being a time stamp, which sometimes markets don't. Sometimes
22:17
Speaker 1: markets read in that the Fed is massage the minutes
22:19
Speaker 1: after the fact if they have a reason to do so.
22:22
Speaker 1: But I think a lot of people said, you know
22:23
Speaker 1: what those minutes were time stamp before the Atlanta Fed
22:26
Speaker 1: printed negative two point one percent for the second quarter,
22:29
Speaker 1: before SMP Global said the second quarter was gonna be
22:32
Speaker 1: negative one point five um. And that's telling you something actually,
22:35
Speaker 1: because the Atlanta Fed GDP now model kind of broke
22:39
Speaker 1: down during COVID, and now that we've got all the
22:41
Speaker 1: COVID noise out of the data, it's coming right back
22:44
Speaker 1: up to where some of the best models on the
22:46
Speaker 1: street are and they're converging. And that that tells you
22:49
Speaker 1: that a lot of it tells you why a lot
22:51
Speaker 1: of cell side, if it's economist right now, are saying
22:53
Speaker 1: it's going to be a technical recession but not a
22:55
Speaker 1: real one. I mean, it would have to be really
22:57
Speaker 1: far off for there to be growth though, right We're
23:00
Speaker 1: very likely to see two quarters of contraction, right, I mean,
23:03
Speaker 1: I'm saying that's a recession, but it's a it's a
23:06
Speaker 1: technical one, but not not a real one, everybody argues
23:08
Speaker 1: with the Gary Shillings. No, no, NBR has to come
23:11
Speaker 1: out and say it's a recession. And I think nb
23:14
Speaker 1: ER will come out and say it's a recession like
23:16
Speaker 1: in twelve months or so, because there's a typical twelve
23:19
Speaker 1: to eighteen month leg. That's when they timestamped these puppies.
23:22
Speaker 1: But again, we've had credit card spending very strong, We've
23:26
Speaker 1: had we've had consumers blow through their savings, so we've
23:30
Speaker 1: propped up consumption some would say somewhat artificially, and now
23:34
Speaker 1: we're heading for a consumption cliff that's just now starting,
23:39
Speaker 1: so that that can prolong the recession. I have a listener,
23:44
Speaker 1: writes in I think he's watched you speak a few times,
23:47
Speaker 1: so he's a big fan. And he points out that
23:50
Speaker 1: are forecasts have been all over the map about what
23:53
Speaker 1: the Fed is gonna do, about whether we're gonna have
23:56
Speaker 1: a recession, how shallow it's going to be, how short,
23:58
Speaker 1: And he points out we haven't see seeing a quantitative
24:01
Speaker 1: tightening yet, which is a huge question mark. We haven't
24:04
Speaker 1: seen the downward revisions and earnings right analysts on the
24:06
Speaker 1: sales side have still left um their revisions are their
24:10
Speaker 1: forecast sky high. We haven't seen inflation come down, we
24:13
Speaker 1: haven't really seen job losses. This is all too comma,
24:16
Speaker 1: it is, and it's all building up in this system.
24:19
Speaker 1: And yet when you follow every Friday after the close,
24:22
Speaker 1: the Federal Reserve publishes the highth eight and in in
24:26
Speaker 1: there there is a very good, reliable gauge of liquidity
24:30
Speaker 1: and it has been negative for three months in a
24:32
Speaker 1: row prior to QT, and that people need to understand.
24:36
Speaker 1: And Muhammadarian has done a very good job of articulating
24:40
Speaker 1: where we are right now in the cycle, that we're
24:42
Speaker 1: heading from recession shock to a liquidity shock, and that
24:46
Speaker 1: really changes the game. So right now I think that
24:49
Speaker 1: we're still in the midst of yet another bearer market rally. Alright,
24:52
Speaker 1: So is this Federal Reserve. I've always thought of it
24:54
Speaker 1: as kind of a balancing act between fighting and inflation,
24:58
Speaker 1: yet not pushing it into a action. But now some
25:00
Speaker 1: people are saying they're really focused on inflation, but yet
25:04
Speaker 1: some people say they're really focused on keeping us out
25:06
Speaker 1: of a recession. Is it a balancing act or do
25:08
Speaker 1: you feel like they have a bias. It is a
25:10
Speaker 1: balancing act, but it's a less balanced act headed into
25:14
Speaker 1: this close to an election, and so federals are officials
25:18
Speaker 1: are really there's an existential crisis going on as it
25:21
Speaker 1: pertains to September because it's so close to the election.
25:24
Speaker 1: But surely this independent body for Heaven won't risk its
25:29
Speaker 1: credibility for the political status quo rights not. It's only
25:34
Speaker 1: been politicized since Greenspan started leaking information on TERMP to
25:38
Speaker 1: bond trading desk. But other than that, the play, the
25:40
Speaker 1: play was great, Mrs Lincoln, I uh, yeah, it's pretty crazy.
25:44
Speaker 1: By the way, why isn't Mohammed running the Fed? Why
25:47
Speaker 1: isn't somebody he made the right calls for the last
25:50
Speaker 1: couple of years and no one was listening. Apparently he's
25:54
Speaker 1: in England, He's not that far away, and his voice
25:57
Speaker 1: is pretty loud and his point. He's had some pretty
26:01
Speaker 1: important as well, and he's had some great calls, and
26:05
Speaker 1: he really has lined up the domino as well and
26:07
Speaker 1: warned us one step after another. We've got an inflation shock.
26:11
Speaker 1: Now we're gonna have a recession shock. Now we're gonna
26:13
Speaker 1: have a liquidity shock. He's been there the whole time,
26:16
Speaker 1: and actually because j Powell founded the Industrials Group at
26:19
Speaker 1: the Carlisle. He speaks to people in this world. He
26:21
Speaker 1: speaks to people in private equity. He knows that banks
26:24
Speaker 1: are sitting on north of fifty billion dollars of loans
26:26
Speaker 1: that they can't get priced. J. Powe speaks to these people.
26:28
Speaker 1: He knows that liquidity in the system is seizing up.
26:30
Speaker 1: And I think that's why they treat quantitative tightening like
26:33
Speaker 1: the boldem word. It's like, don't talk about it, just
26:35
Speaker 1: don't don't, don't talk, don't bring it up. So don't
26:38
Speaker 1: we see it's Bruno, It's Bruno. Now we don't talk
26:41
Speaker 1: about Bruno. We don't know, no, no, what does Liudo
26:45
Speaker 1: look like to every day folks like me? Liquidity shocks
26:49
Speaker 1: looks like four out of five people saying they're afraid
26:52
Speaker 1: of losing their job. They start to see bankruptcies, and
26:55
Speaker 1: we are starting to see bankruptcies. We're starting to see
26:58
Speaker 1: some of the vestiges of the industrial recession that we're in.
27:01
Speaker 1: In fact, if you looked at today's jobless claims, the
27:05
Speaker 1: state with the fastest rising and the greatest extent is Michigan. Michigan,
27:10
Speaker 1: we've and you know what there's apparently a semiconductor glut
27:13
Speaker 1: in the making, So we're gonna have tell that to
27:16
Speaker 1: my Chevy Silverado sitting in I have ordered a Shelvy Silverado.
27:20
Speaker 1: I've been waiting months and months for it. It's built
27:23
Speaker 1: at a factory in Mexico, but they won't ship it
27:25
Speaker 1: to me because it doesn't have the right chips. They're coming,
27:28
Speaker 1: They're coming, and we're gonna be talking about life, housing
27:31
Speaker 1: and oversupply of cars in a year. All right, Danielle,
27:34
Speaker 1: thank you so much for joining us. Daniel DeMartino Booth
27:37
Speaker 1: should let's take a picture and we'll tweet that. We'll
27:39
Speaker 1: do that. CEO Chief Strategist Quill Intelligence, also form advisor
27:43
Speaker 1: at the Federal Reserve Bank of Dallas. Thanks for listening
27:49
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
27:52
Speaker 1: to interviews of Apple Podcasts or whatever podcast platform you prefer.
27:57
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Leer in
28:00
Speaker 1: nineteen seventy three and on ball Sweeney I'm on Twitter
28:03
Speaker 1: at pt Sweeney. Before the podcast, you can always catch
28:06
Speaker 1: us worldwide at Bloomberg Radio