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We are going to do an interview right now that I've really been looking forward to. Over the past couple of weeks. I've been getting a lot of well not a lot. I've been getting I guess, on a daily basis emails, usually holding a nugget or a chart that just really piques my interest. From Torson Slock. He's a chief economist and a partner over to Apollo Global Management, and I'm glad to welcome him to the show. Torson, Welcome to Bloomberg Business Week. I got to start by
asking you about how worried you are. I see kind of a trend in the charts you send about rising credit card usage among consumers or rising, say, you know, car payment delinquencies, and I wonder if you're looking for this next recession to kick off.
Yeah, no, thanks, Manni, thanks for having me on.
I think that there's a number of indicators more recently that indeed are flashing a bit more yellow, and some of them.
Actually even flashing some red.
Specifically, as you just mentioned, if you look at the linguaity rates on credit cards across different age cohorts, you're seeing for younger generations that the level of delinquencies is now at the same level as we had in two thousand and eight.
Likewise, if you look at the linguaity rates for.
Auto loans, you're also seeing for younger cohorts and here meaning people who are twenties to thirty, thirty to forty, that we have also a level of delininguities that is close to what we had in two thousand and eight.
Combining that with a fits Celrosa survey which tells us something about how tight are credit conditions, which both said is that demand for corporate loans is at two thousand and eight levels and also says that demand for cer re loans is at two thousand eight levels, and it also shows that credit conditions more broadly have tightened.
I do get a bit worried that.
Credit conditions are beginning to tighten so much that it ultimately is having that negative impact on the economy that the Fed quite frankly has been waiting for for now several quarters, Torstan.
How do I chart this? How do I tight chart those tighter credit conditions? Because I look at things like financial conditions indexes and I don't know these accurse. Again, these are market based measures, and it shows that things are pretty easy. But then I listen to you and things sound pretty tight, and I want to know how to show this.
Yeah, no, that's absolutely right, Katie.
But if you wait together the market based measures of financial conditions, so that's the stock markets, that's the IG spread, the highyeer spread, the spread for loans, those are not flashing really any worries.
If anything, they're still green on the recession worry front.
So from that perspective, you're right that markets obviously have been waiting for the recession to arrive. A five type ECFC. Go on my Bloomberg screen and look at expectations to GDP growth. The consensus has expected a recession since October
and the recession has still not arrived. So I think there's recession exhaustion in credit markets and equity markets, and people saying, well, where is this recession that these bond investsels have talked about for so long, and if there's no recession, maybe you should have equities trading higher and credits bressed trading tighter. So the only issue that I think is under appreciated in that debate is that behind all this is the FED trying to cool the economy down.
And the number one domino break in this debate is that inflation today is in round numbers five percent, both if you look at call, if you look at headline, no matter what specific measure of inflation you look at, it is around five percent.
And the Fed's target is that it should be two.
And if inflation is five and it should be two, the FED is not going to ease anytime soon, and they may actually begin to race raise again in July. So if that's the case, the market is not appreciating enough that the FED is actually trying to cool the economy down. They're trying to slow down earnings growth, They're trying to lower the e in the pe ratio, and with that will of course come a slow down, and therefore, ultimately, in my view of recession, we have.
A great story on the Bloomberg today, tourist and fedbacks away from wages focus, bolstering case for rate pause, And the idea here is that there's been more and more research showing that wage growth doesn't have a direct impact on inflation. Now, I can't understand how that could be, because to me, it makes sense if you pay people more money, they're going to have more money to buy
more stuff or pay higher prices at least. But I've heard it from very smart people, including Danny Blanchflower from Dartmouth, that you know, the labor numbers we look at just really aren't effective in gauging whether or not we're going to have an inflation, whether or not the economy is slowing down enough to bring inflation down. What do you think about that connection?
Yeah, so this is very important and I did see that story and it is a very good It's very well written and will very well laid out. You're right, this is a debate in FED working papers at the moment. There was a paper recently, and this is very controversial what you're highlighting, namely by the San Francisco FED, saying wage inflation is not important for consumer price inflation. And
why is that controversial? Because that basically rips up page one in the economics textbook, which says that when you have higher cost of production through higher labor costs, then you should also see higher prices of the products that are produced. The issue with that paper, and the issue with that approach, is that that's a statistical correlation where the author basically finds that the correlation between wage inflation and consumer price inflation is basically very low, only.
Zero point one.
So now you can ask the question, Okay, does that mean that wages do not matify inflation? Well, if you doubled everyone's wages in the US economy, are you telling me that that would have no impact on inflation, on consumer price inflation?
I think we can all agree that that would not be the case.
So therefore it really becomes almost the statistical exercise of saying, maybe a statistical correlation is close to zero, but the economic connection is very obvious. Exactly as you said, Matt, that you would have expected if people high incomes, they go out and go more to restaurants, fly more on airplanes,
day more hotels, and that all creates more inflation. So it is the case, in particular, given worth saving sign the economy is still being so strong that the amount of money that people spend on different things are still the key driver of.
Inflation, right, Well, let's talk about some of the inflation figures that we're going to get tomorrow. For May, I want to zero in on what we're going to get on the year over year numbers. So headline CPI year over year is expected to come in at four point one percent. Core CPI year over year is expected at five point two percent. That seems like a really big
gap to me over a percentage point. Does that have any bearing on what we might see from the fat How do they factor in that sort of divergence that we're seeing be between core and headline inflation.
That's a very important question, Katie.
So the reason for that difference, and that is also a bit unusual, is that when Russia invaded Ukraine, energy prices went not a lot. And of course, as you get through the episode, now we now are twelve months more away from that event in February twenty twenty two. So the result of that is that the year over year way of measuring inflation is that inflation is actually now beginning to decline in food and energy.
So that means that the drag because.
Of us getting to the other side of February twenty twenty three. The drag on headline inflation is bigger simply because food and energy can no longer quote unquote remember what happened in February twenty twenty zero. What the FED focuses on is coinflation. And as you highlighted, and I'm here on my Blueberg screen Tyving Ecoco, you can see as you say that coin inflation the spects to drop from five point five in the month of April to five point two in the month of May, and that, of course is.
A decent decline. Again, the fit target is that inflationship be two.
So all these numbers that we talk about here four, five, five and a half are way too high for the FAT. But that's why the Fed of course has this debate about, well, we need to have coin inflation in particular move down closer to two. And that's happening, but it's just happening very very slowly, and it does probably require interest rates at these elevated levels for at least well into next year before we begin to see a meaningful move down to two percent.
All right, Tors and I have a ton of viewer slash listener questions, so I'm gonna fire off a couple of these here.
And rapid fire around one.
Especially that relates to a chart you sent recently that's stuck in my mind, which is the fact that there's still a lot of state excess savings in the economy or in bank accounts from the stimulus listener rites in, when do these elevation did prices start to hurt or pain in the consumer? You know, if you look like at the consumer like a monolith, then it's easier, I guess to answer this. Let's not get into the bifurcation that surveillance would start digging into. When is it going
to really hit? You know, Joe Plumber.
Yeah, So the FED actually also had a working paper.
On that saying that households will basically run out of these excess savings by the end of this year. That's quite unusual for a FED working paper to spill that out so clearly.
But that means that consumers.
Still have more savings left even though prices have been going up. So from that question, we can basically exactly conclude that it still is at least a few quarters away before we get to the point when consumers will no longer have money to stay at hotels, go to restaurants, flying airplanes, go to sporting events and broadway shows. Because all that data continues to be reasonably strong, simply because savings are still so high.
I just we never would have expected inflation to be this sticky, right. I remember watching Ben bernanke on sixty Minutes and he was like, we could crush inflation with a hammer, you know, but it's obviously more difficult. It's more easily said than done.
Honestly, this whole episode of inflation going up and now down so slowly, it is a bit of an embarrassment for the economics profession. Nobody really predicted infistion would go up, and now everyone is so.
Busy saying, oh, it will come down very quickly.
And now there's more and more people, including myself, who are beginning to worry. Maybe it's not going to come down to it quickly. Maybe as an investor, I do need to take into account that the cost of capital will stay elevated for longer, that the fit is just not going to go at lower rates as quickly as markets currently uprising. So you're right, it is very surprising that the economics toolbox and the textbook that we all have been studying all these years.
Well, well, Torson, don't be too embarrassed, because you absolutely rule. Thanks so much for joining us. Torson slock from Apollo Global.
You're listening to the Bloomberg Business Week podcast. Catch us Lie weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or wants us live on YouTube.
We have on with us the first black female CEO of a major PR firm, Lisa Osborne Ross joins us the US CEO at Adelman, And it's I think especially important because we also have the results of Adelman's Trust Barometer, Business and Racial Justice Report at a time when you know, more Americans are concerned about racism but fewer are optimistic about progress being made. It reminds me of last week.
I saw this story the Supreme Court back's extra black Alabama district and the GOP rebuff, and I just thought, what year is it that we're still dealing with this kind of thing? How come we haven't already solved issues like this? So Lisa joins us right now on Zoom from Washington, DC and Lisa, it's great to have you here. Thanks so much for coming on the program. I would love to know first, just an overview of the results of your survey. I feel like more and more people
are concerned. We talk more and more about this issue, but there's just not being not enough progress actually being made.
Look, the research is critical because this, whether it should be or not, is an emotional issue. And the reason we do it is because the data matters. There's a wide range of feelings on this. There's defeatism to defensiveness. There's in some cases even an outright disagreement on whether racism even exists or not. Now, I'm happy to report that less than fifteen percent of those polled believe that
racism is not a problem. But the example that you just gave is, you know, we live in two different worlds. You were shocked by the Supreme Court's movement, but others lived that on a daily basis, and they're.
Not shocked at all.
I think it's even no, you go ahead, no, I don't know others.
There was only one black congressional district in Alabama. That's what blew me away. I mean, you know, there needs to be more. I've been to Alabama. There needs to be more representation there, right, So how come the supremium to make this decision in the sixties, right?
Right?
You and I both know that there are enough black people in Alabama for that to not be the case.
But that is a that is.
It's related to this conversation, but it is part and parcel of the environment that many people still live in, and it is problematic. I was I was struck when we saw the results of this research because I think people had one of four reactions. One people were like, tell me something I didn't know. Racism exists, fully exist in corporate America. Other people were like, you know what, I knew it. I felt it, felt it, felt it, but I couldn't put my finger on it, and the
data supported it. A third group of people were like, oh my god, this is shocking, this is terrible. I don't know where those people have been, but for some people it was still very surprising. And most unfortunately, there's a fourth group of people who have said, Okay, it simply doesn't matter because nothing is going to change.
And I mean, looking through the results of this report, you talk about two different worlds. It seems like there's a real sort of divergence between what executives think their company is doing or the progress that they've made, and what non executives say when we talk about making progress and addressing racism, it seems like the executives have a much different view on that than maybe the people that report to them.
Bingo, I fell into that second category of you know what, I thought that there was a problem inside the organizations that I work with and that I counsel, and then just everything that I see and what you say that is exactly it. The executives are feeling good about themselves. They're like, hey, I go to my DEI training a mentor people of color. I'm supportive, I'm anti racist. But
the rank and file see things very very differently. And the reason that we're not making progress is that those executives who are in decision making roles, they think they're doing well and don't have a problem. But the rank and file sees every day that we have a significant problem. And that to me was the most shocking.
So why do executives think that they're doing well?
Then?
I mean, is it just that they're checking boxes here and not actually moving the ball forward? I mean, I don't understand.
Yes, there's a lot of box checking, but also if you look at it, we've been having this conversation about racism and particularly racism in the workplace for some time. After the murder of George Floyd, the nation had a reckoning. They had a reckoning, and for many people this was the first time that they really started to pay attention to the conversations. They started to look at their teams and realize and recognize that their teams were not representative.
They started to look at their leadership, at their boards, and they saw that they were not representative. And you know, there's been all this conversation about like a retraction on ESG and particularly the S and ESG. I have seen and said that those companies that got it in the first place, who were about it, who were not running DEI programs, but looking at representation at all levels of
their organization, they haven't stopped. In fact, they are even stronger those organizations who for whatever reason FOMO peer pressure, Oh everybody's doing it, so I guess I should too. Those are the organizations that have pulled back. But those that were in it in the first place, they're even stronger in this space.
So, Lisa, how does this problem get fixed? I mean, is the obvious answer here that perhaps you know, those at the executive rank should maybe look like the people that they represent, that we need more diversity in management, or what do you think really needs to happen to propel this conversation forward.
I think wanted some honest conversation. For example, when I am interviewing people and they tell me how much they value DEI and how important it is to them, the first question I ask is, I think that's lovely, that's important. How diverse is your senior team? How many people of color do you have on your senior team that are in decision making roles? And so I think moving it from the box checking to the narrative, and I think we change when two things are realized by business leaders.
And I say this to my team at Edelman. You cannot credibly create content, you can't credibly create campaigns, You can't represent a point of view unless you have a representative team. In this current day, you've got forty of the population that is non white, non male, non straight, And so if you don't put together teams that represent the wide array of what America looks like right now, and I say America because I'm a US CEO.
So when when.
Leaders realize their their work is not credible unless it's created by representative teams.
Alice Osborne Ross from Edelman. Great to have you.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
It's ams Amymsra. All Right, I do want to fly, but not in a narrow body seven thirty seven.
Max.
I'm still a little bit worried about flying on a seven thirty seven? Is it just me?
No?
I get that I don't know enough about planes to sort of suss out what aircraft.
I know very little about planes, but I know this one tends to crash a lot.
Those numbers seem bad.
Yeah, And apparently the Chinese for a while they were cool with it until the plane started to crash. They were buying a ton of boeings. Trump's trade war and then COVID and all of a sudden, Boeing went from like the most beloved plane maker in China to the biggest loser to air Bus. This duopoly is something we're going to talk about with Bloomberg BusinessWeek editor in chief
Joel Weber. He joins us here in the Interactive Broker studio, as well as Julie Johnson, the Aerospace reporter, and Joel I was telling Katie earlier, my love for this business has grown exponentially since I read Airframe by Michael Crichton.
H Okay, you read have you read it? No?
Man, I feel like this is one of the most novels he wrote. Jurassic Park. Yeah, and it's a great movie. It touches on China to.
Everyone.
So how did how did Julie whin you over this pitch?
Then?
Well, you know, we have this interest in airplanes and air lines and the people who are running those companies and also the people who manufacture them. There's this thing that happened in China where you know, they closed the borders for a really long time during COVID travel and demand went away, uh internally domestically in China, uh internationally, and that had all kinds of implications for the global economy.
It also had implications for people who make and sell airplanes, and and that was sort of an interest of us, especially ahead of the Paris Air Show, which is just around the corner. And and so we circled back to Julie to talk more about Boeing. So, so, what what's happening with Boeing since China has been such a crucial market for the company for so long.
Julie, pretty fascinating, I mean, for for the last three or four years. The story had been pretty much the same until very recently, and it was one of frustration for Boeing. They were locked out of their largest international market,
frozen out, whatever you want to call it. And and the they very much seemed to be caught in the middle of this you know, trade war, and they were all kinds of other issues mixed in, including the fact that China was the first nation to ground the Max after those two crashes and one of the last to unground it.
So it was only two were there only two?
There were only two?
Enough to get Ma's attention.
Yeah, well it was. Yeah, it was a terrible, terrible tragedy.
But and it was only one kind of version of the seven three seven, right, Julie, because there are so many of those planes out there. But this was just like the Max eight or the.
No. The design flaw was in was baked into all the Max family and it's it's been addressed, I mean that was. But anyway, so what's going on here is that market dynamics have overtaken politics there because of COVID and the Max grounding. The global air mark market is thousands of planes short of demand, and so if you want a Boeing jet, you want a Max, you better get in line because they're sold out now into twenty
twenty eight. We just saw Ryanair place this monster order that that goes into the twenty just to line up aircraft. So and Airbus is sold out almost to twenty thirty. So it's pretty pretty fascinating to see. Suddenly, you know, there's all this activity in China. They need their planes, and things are starting to look good for Boeing.
The numbers are striking. I mean, I took from the story that Boeing was like a big was beloved in China and was selling more planes than anybody else there. And then the geopolitical tensions I think are key, right, the Trump trade war plus COVID plus the MAX crashes. Since twenty twenty, Airbus has sold three hundred or delivered three hundred and eighty four planes to China. Boeing has delivered four, why haven't bothered? And Ryanair has now put
in an order for three hundred. United has ordered like two hundred, and the Indians have ordered another one hundred. So you know, everybody wants these things. And I guess Boeing is now optimistic? Is Dave Calhoun? The guy who Boeing now he's optimistic that what the Chinese are going to start ordering him again because he had a backlog of like ten billion dollars of the planes that he was supposed to sell to them but had started already giving to other clients.
Surely you did it, that's firedough.
Yeah, So so there's a lot of unpack here. Boeing has one hundred and forty planes that they built for China, most of them in twenty twenty nineteen, that have been in storage because China was closed to the MAX, and China has not resumed imports of the MAX yet, but apparently that could happen. It's basically all they need is a stamp from the government for that to happen. The airlines want their planes. So so yeah, that's the ten
billion dollars that's tied up. That's been very frustrating to Boeing. But if China, you know, Boeing kind of ran out of patients last year as the market started to heat up, and Calhoun was not subtle at all in saying, you know, we're marketing these If you don't want these planes, they're
gonna be other buyers. And that's that's right around the time that China started reopening and this this relationship flipped and by the way, I mean it could flip again, Like the politics are crazy here, I mean, but it's looking good for Boeing.
So how did Airbus managed to to really just continue to you know, sell planes. There's so much more dramatically than Boeing.
Well, their plane wasn't grounded. I mean, this is so the max. The global grounding was I think the longest in aviation history, certainly the longest for a really important aircraft, and Airbus Boeing had to shut down production during COVID. Airbus managed to keep factories going and running semi semi hot. And then Airbus has also done a lot of direct investment in China, and they've got they've you know, they're building their A three twenty NEOs in China that's the
rival to the Max. So so they've managed they've got a really good relationship that they've you know, they've managed to foster through the trade tensions. And by the way, Washington's kind of irritated by some of the ordering that that's gone to Airbus's way.
Well please, they've brought it upon themselves. I mean, you know, if you want to win a congressional campaign, dissing China is a great way to do that to get votes. And the Europeans have been courting the Chinese with the Belton Road initiative and letting him straight up in through Italy, right up into the heart of of Europe. That's got to help a lot as well, doesn't it.
Yeah?
Yeah, absolutely so.
I wonder why does China not have its own I was talking about Airframe. I was talking about Airframe, the book by Michael Crichton. Julie, have you read it? Sorry, okay, I thought it was popular anyway. Part of the book talks about how the airplane ip like, for example, how you make a wing is so heavily guarded in this country, and I'm sure air Bus guards theirs as well. But they have to outsource some of this manufacturing to China.
As you know, the global economy became too intertwined. China knows how to make planes, now, why don't they make an uncomfortable narrow body jet.
They have China just to make things even more complicated. So China has its rival, homegrown rival to the Max and to the A three twenty neo, and it just entered service last month and more than ten years behind schedule, by the way, and about I've seen estimates that around eighty percent of the technology in that plane, basically everything that you need to keep it aloft is Western made, and so manufacturing commercial jets is really, really, really difficult,
and to build them on scale even tougher. So it's one thing to get it into the air, but then the next challenge for China is to start churning these out, and it's you know, they put a lot of resources into it. I wouldn't count them out at all, but it's going to be probably decades before they're a threat to Boeing an air bus. And that also works in Boeing's favor right now.
Okay, Well, if Matt is reluctant to get on the Max, Katie, I'm curious the seat nine to nineteen that's going to be China's answer to the Max. Matt, when you're gonna step on one of those?
No, I mean no, it's like getting a Chinese COVID vaccine. No, thank you, ma'am. No, it could work. It could, yeah, it could.
Okay, Julie, I have a question about the competitive landscape here, because again it seems like this dynamic maybe is shifting again in favor of Boeing. But I mean you also made the point that if you look at airbuses, waitless, I mean we're talking until the start of the next decade. So from a competitive standpoint, it still seems like when it comes to China, Boeing is far behind that of air Bus. Is that safe to say?
Yeah, that's that's spot on. Yeah, that's exactly right on. The on air Bus is clearly in the driver's seat and on. Frankly, because they both Boeing and Airbus have struggled postc OVID to get their factories back up and running smoothly, and when You're coordinating hundreds of thousands of planes or parts that go into a plane, and they've got to arrive on schedule. You know, sometimes down time
to the half hour. You can just see how quickly, you know, how difficult that is, and how quickly things things can go amiss. And so air Bus is inability to, you know, to make good on their their schedule has kind of left going back into the game a little bit. But air Bus right now dominates. I mean, there's just no question it's their market.
Okay, Julia, I'm curious. Air show coming up soon Paris? Yeah, do you get to go? And if not, what are you going to be looking for from Afar?
No, I'm I'm I'm gonna be there. I'm gonna be sleep deprived and you know, eating bread and cheese and sitting in traffic.
Maybe just.
Poor Julie, she's gonna be eating French cheese and drinking wine.
What are you most looking forward to there, Julie?
You know it's on it. The excitement is palpable. So it's it's very cool to have the whole industry, I mean, tens of thousands of people jammed into an airfield for a few days and you run into I mean, like, oh my gosh, there's a you know, four star general walking by. I mean, it's just it's really really cool just and and as a as a I love airplanes, and so just just to see them up close, to see the flying displays, to run into people, I know, it's it's like, it's very cool.
Matt wants you to ask why Airframe wasn't a bigger hit.
Now you guys read it. I'm excited to I'm excited to see what they have. And Julie, we're going to have you back on out of Paris Air Show because they always have the coolest new things, new products there and it'll be interesting to see.
I always an open question overrated underrated The book air Frame by Michael Creton, just putting it out there.
The book apparently is under red, all right, Julie Johnson there covers airlines for US or aerospace is more than just airlines, the makers of planes and defense stuff as well. Joel Eber, Editor and Chief at Bloomberg BusinessWeek.
This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Journal.
Now about you let me oh, no, no, no, honey, please, I want to drive.
It's a good question that.
This is good.
Drive to the clothes me well, don on Bloomberg Radio.
All right, Matt Miller here and for Tim Stenevick, I've got Katie Greifeld by my side filling in for Carrol Master. Carrol's out for a couple of days today and tomorrow. Well deserved, R and R.
Good for her.
I guess I actually don't know what she's doing, but hopefully not listening anyway. Aaron Kennon joins us right now. He's a co founder and chief executive officer of Clean Harbor Asset Management. They have over a billion dollars of assets under management out of Stamford, Connecticut. Aaron, great to get you on the program right as we, you know, break into this bull market at the end of last week and today, it looks like investors are behind that
they're on board with it. We've talked to a number of statisticians who tell us anytime we go up twenty percent from a bottom, or let's say ninety two percent of the time we continue up twelve months later.
What do you think, Well, we'll have to wait and see.
I mean, I think after a significant tightening cycle like the one we've just gone through, assuming we pause here, usually markets bottom after the FED starts cutting rates, not as the FED is pausing, and so we'll have to see on that front.
Map.
But I think the market is clearly optimistic that we're not going to experience a hard landing. Trading at the SMP trading at twenty times this year's anticipated earnings level is certainly in sort of the top deathcile over the last twenty five years of valuations, and so this notion of a hard landing certainly is not pricing of the equity market as we head into the FED meeting on Wednesday.
Well, Aaron, how seriously do you you factor in valuations, because I mean, the number you just gave for the S and P five hundred, it's very high, as you mentioned, especially looking historically. But you know, you could have said the valuations were high last year or the year before the year before that, and it still seems like this index finds a way higher. So when you're looking in the totality of the market. I mean, how do you factor in valuations?
Well, I think ultimately earnings drive the long term performance of the equity market. But the pe band, if you will, that you just referred to over the last several years is certainly worth exploring. Trading as low as let's say, fifteen times and as high as twenty one times, we may be in the upper end of that band, and so the notion that we go into a moderately hard or harder landing I certainly do not think is priced into the nearly forty four hundred s and P five
hundred levels. That isn't to say that we don't believe in stocks for the long haul. We certainly do. We think that they're core to most client long term acid allocations. And that doesn't mean that we don't see opportunities within the equity market even today. But certainly a point of caution, we're training at the upper end of that band as growth is decelerating, is employment appears to be peaking at the moment, and other signs of economic deceleration are upon us.
What is your what are the odds on a surprise at the FED meeting on Wednesday. I mean we got I think a surprise from the Bank of Canada. For sure. We were expecting a pause there as well, and they hiked rates. We've seen the Bank of Canada make moves before the FED. It's one of the few banks that seems to be able to do that. Everybody else follows. What are you expecting from J pallin Coo on Wednesday?
Yeah, I think the surprise would have to emanate out of a really hot CPI number tomorrow. Otherwise, I think it's essentially cooked in the books that the FED pauses. The FED Q and A will be interesting. I think the talk about data dependency, and I think that's what
the market anticipates too. You know, we've gone from nine percent headline inflation to four point nine percent on the heels of sort of a post COVID normalization of supply chains and the like, and now, you know, I think there's a conventional wisdom embedded in the market at Moving from nearly five percent headline back down towards the fed's
two percent target's going to require some heavy lifting. But if inflation trends lower towards the FED in surprises to the degree that it accelerates towards the two percent level.
It may be due to sort of the more traditional.
Components of the economy, which is employment cracking, wages softening, and growth slowing. We didn't see that happen from nine to four point nine, but we may see it from four point nine to a two percent handle on inflation mm hmm.
Yeah, all eyes on those numbers of course, coming at eight thirty am Eastern tomorrow morning.
But we are expecting a east and drop yeah, number right, four point nine percent to four point one percent.
Yeah, and also a drop in core.
Inflation, but five and a half to five point two.
But as we've talked about that divergence between core and headline, it's definitely growing. But Aaron, so far we've talked about equities, I want to bring bonds into these conversations because this year was supposed to be the year of the bond. I guess a did you buy into that? And where are we on that narrative now?
Well, it's been an interesting year, right because we we we've experienced this the sort of banking crisis on the West Coast with Silicon Valley Bank really had you know, bond bonds trending, you know, lower on the heels of that, and now now we've seen a re emergence of higher bond yields. You know, yields haven't really moved much relatively speaking since the commencement of the year, even though inflations come off. So it's been a little bit of a
head scratcher. And I think one would argue that if we were sitting here at the beginning of the year and someone said that rates are unchanged, where are equities, you'd probably say equities would be lower. But that hasn't been the case either, So you know, a lot occurring
on that front. What I think going forward is that inflation will continue to trend downward, that maybe we avoid a hard landing, but we're certainly moving into a slower growth period, and that eventually we'll see the longer end of the curve in particular. But as the Fed normalizes rates, perhaps in twenty twenty four, we'll see rates trending downward across the board. Maybe the curve finally lose the inversion sometime in late twenty twenty four, but higher prices for bonds.
I think this is another asset allocation opportunity for those who own balanced portfolios of equities and bonds where a slower economic growth picture augurs well for the over all bond market, particularly in a soft landing scenario where maybe credit doesn't widen so significantly, particularly high yield and even investment grade. It could set up well for balanced portfolios going forward.
Aaron just got about thirty seconds left. My late grandmother always requested Pacific salmon for some reason. She was a stickler. And I note that you are on the board of the Atlantic Salmon Federation. Why is that? What is that?
Well, it's a very important organization. We're trying to say wild runs of Atlantic salmon. It's an international challenge. It's faced by the United States, where we have a moratorm. We can't fish for Atlantic salmon because there are so few of them moving into the main waters. We have very few runs left. In the Canadian provinces have seen
salmon runs collapse. It's more than about salmon. It's about how we treat our coastal areas, how we deal with the habitat that ultimately allow for salmon to return to their home waters.
If it's the international.
Relaynmark week away.
All right, Hey, I got to cut you off there, Eric, Aaron, but I'm pleased if we guy you on. Aaron Kennan from Clear Harbor Asset Managements.
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