Recession Risk Growing as Inflation Stays Hot

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Alright, pretty, here is my hot take of the day, and it's a courteysy of our next guest. Stock prices are down, Treasury yields are down, oil prices are down, Corporate credit spreads are wider, the dollar exchange rate is higher. This is a recession trade.

There's no other way to call it. Neil, data partner and head of economic research Renaissance Macro Research, joins us on the phone from New York City, and Neil, you put it perfectly. Even somebody like me can kind of put it all together. Here is this something that's been building for a while here. How do you think about recessions and and at risk markets? Well, I mean I think, um, you know, we're seeing uh significant continue to repricing in the in the in the financial markets, right, I mean

you know you said it right there. There's no other way of describing what's going on. And you know, I think a lot of this is just um, you know, a function really of a FED guidance, right, and um, you know I think the FED is getting um, you know, frankly less data dependent, less data dependent, right, I mean, in other in other words, in other words, they're hiking aggressively even when the data I think is moving that should be leading them in a direction to not be

doing that. Why do you think they're doing that? Is it just the political fear the backlash from the markets in terms of being quote unquote behind the curve? Um? Well, I think that they were so wrong on the on the transitory inflation view, right, that they almost need to be sure that inflation has turned a corner before they start pivoting off their current their current policy path. And certainly the FAIDS rhetoric has been increasingly hawkish, right, I mean, um,

you know they're all in on price stability. Um. I think the big the big story in the last week is just how their their assessment of risk management has changed, right. I mean so in the beginning, it was, you know, they basically have two choices, right, two doors that they could walk through, both with pretty bad choices. On the one one door behind door number one is a recession, right, that's a mistake. Behind door number two, let inflation expectations

go higher, and face with those two choices. The said saying that they'll go through door number one, which is the recession. It's like the lesser of two evils from their perspectives. And so I think that's what's changed, is that they're they're they're they're sort of assessment of risk management. Um, they would much rather, um, have a recession to bring inflation under control than the alternative, which is not getting

doing enough and allowing inflation expectations to keep drifting higher. Well, inflation expected just keep drifting higher. But I have to ask, simply, it kind of sounds like, on the one hand, there's this narrative out there that this is quite literally Chairman Powell's vulgaresque moment. But then again. We spoke to Anita Markowska, of Jeffries's chief economists there just a few minutes ago Bloomber Television. She said, well, actually, we don't even need

to see that. We might not even be there yet. Can you explain just the wide range here of outcomes that you're seeing. Well, I mean, as you know, if you put two economists in the room, you're you're lucky six opinions. So um, I mean I think that probably goes some way. Um um too too. I mean I think part part of this is just what we're seeing.

I think is a flaw in the FED sort of expectations management strategy, right, I mean they kind of you know, they work their expectations, they try to guide the financial markets, and you know the idea, I guess is to like have the meetings essentially be sort of like foregone conclusion by the time they meet, right, I mean that's already

precedentsly just do whatever the market. I just think that there there are so many moving part between each meeting, So why would you um, you know, play that play that game. So I just you know, I just think that you know, to me, this is supposed to be a dated dependent institution, right, and Um. One of the problems with expectations management is that, UM, you know you used sort of this sort of forward guidance you know a person they had been taking, is that you kind

of lock yourself into a path that becomes difficult to undo. Uh. And and I think that's that's happened to some extent, Right, I mean, they're going seventies went seventies five in June. They're they're gonna go seventy five in July. And what's the off ramp uh in September fifty basis points. And remember, I mean I think this is important for your viewers to understand the sets forecast will likely be revised down in September, both for core, both for inflation and for

GDP growth. UM. And they're still hiking, you know, relatively aggressively despite that. So if it looks like they're they're not data dependent, I think that's a big problem for the markets. UM, and that to me is increasingly what looks like is going to happen. Neil, about thirty seconds here you mentioned inflation expectations. You're looking at break evens here, five years, ten years, even to year break evens. They it looks at least chart wise, but they've peaked. Does

that mean inflation is peaked? I mean I think inflation has peaked. Um, you know, certainly core inflation has peaked. Um. But I do think that, um, you know, part of this is just the recession trade, right, I mean, um, you know, growth expectations are declining, so if course inflation expectations will fall. The question is what does the FED do about this? Do they you know, do they take the off ramp or not? And if they don't, then we can expect these most to continue. Oh boy, alright,

very tough act there for our freder Reserve. Let's see how it plays out. Neil Datta, partner and head of economic research Renaissance Macro Research is the firm, joining us on the phone from New York City. Again. He's calling this what we're seeing on our screens the recession trade. You got asset prices decline, you got oil prices declining, the dollar higher. It kind of looks a lot like a recession. And that's what Neil Datta feels like we're

seeing right now. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick takes Tim Stinovic on Bloomberg Radio. We highlighted last week the current edition of Bloomberg business Week is their heist edition, where's all kinds of stories of skullduggery and thievery, and we've got a good one today from that edition. Simon Van's Island Would, freelance reporter for Bloomberg Business Week, joined us on the phone from

New York City. Simon talked to us about this lawyer guy, the lottery lawyer. What's this scam? Okay? So, first of all, glad to be here. Uh, well, let's soften it before we get into calling it a scam because he is going on trial in about two weeks, so we have to say alleged with him, although he has some co conspirators who I'll get into, who have all played guilty

and so scammy indeed just looks essentially. The lottery lawyer is a guy named Jason Kurwind, and he cornered a niche market of the legal world by representing newly minted power Ball and Megan Millions winners. And so he traveled on the Today's Show or all over the internet basically saying if you've won money and you're bewildered and you've no idea what to do with it. Called me, I'm your guy. And you know, as some of your listeners may know, a lot of a lottery winners are not

financially sophisticated and a blowing at all. I feel like they've got to give it to friends or family or whatever. And so this guy takes advantage of this opening. He is alleged to basically have squandered over a hundred million dollars from some of the bigger lottery winners in recent history on a variety of colorful schemes. And that's that's sort of the top line of it. So how did

he get caught here? Um? So that's a great question because there's these overlapping criminal schemes that, um that are I played here. So there was a I think that probably it's there's a Ponzi scheme involved, and so we don't really need to explain why the Ponzi schemes involved. Basically, a guy purporting to be a jeweler in Long Island was saying he could get massive returns on jeweler I think like the uncut gems out of Sandler movie, but

like in Long Island. He ends up getting pinched for with the Ponzi scheme, and that Ponzi scheme overlaps the water lawyer that guy, So the Ponzi scheme jeweler guy ends up becoming a confidential informant and starts wire tapping calls involved with a lottery lawyer, and that I think ends up topping some those other people start flipping. There's

wire taps up the wazoo in this call in this case. Uh. And eventually they would let down and they figure out that the water aller has been been losing money on behalf of the people they're supposed to be managing, you know, their money and growing it, not you know, throwing it down the toilet. What are some of the quote unquote investments, uh,

that these folks made on behalf of their clients. Because it seems to me, I always say to myself when I see somebody on the TV screen holding up that big check for I would just buy treasuries treasuries and go to sleep. They do. So this is the irony. So these guys, they, you know, the varying levels of financialistication. But so one of his big winners in the biggest

single lottery winner of all time, meaning she won. She was a South Carolina woman who kept her identity private one point five billion dollars backpot and before tax, and she said to him, please invest conservatively, and he was like, surchure. Sure. Turns out that one of the bigger investment schemes was something called the Merchant Cash Advanced Business in. Some buddies in Long Island got into mc AS and what that is.

It's it's almost like kind of gray area legal loan sharking, highly extracted loans, incredibly high interest rates up to it's for people with bad credit, deathperate for cash, maybe they have criminal history, who knows, very popular kind of gray area industry here in New York State. He decides this would be a great investment scheme. Uh. The guys he ends up parting with, their total crooks, one of them one of whose grandfather was the head boss of the

Colombo crime things. Yeah, and so that's maybe not the guy. I don't know if he googled him or not, but like, that might not be the guy you want to get in business with. And so that that money starts disappearing for a combination of reasons. One the grandson of the mob boss plus the other guy. Uh, they start kind of raiding the accounts, like, hey, we deserve a car, like we didn't win the lottery. One of these guys

deserve all the money. So they start rating it. Then they start investing what ends up being the Ponzi scheme, which so they lose all of it. And then this is a kicker to try to get the money back. They learn about another guy who actually is an alleged member of the New York City mob but for a different family, the Genevaise family, who says this is the beginning of the pandemic. Now he says, I've got something called Ppe and I'm gonna make a ton of money

on it. And then that's the final way of the losing money. There's there's a lot of layers to the story. Clearly, let's add one more. Talk to us about Cheddar Capital. Yeah, so Cheddar Capital ridiculous name and if you google it, like you, this is the name of a business, Uh, you can't even find it. It's like there's that vanity fair website called Cheddar and then there's the cheese and it's like, is this even a real thing? Cheddar was one of the merchan cash advanced businesses that he was

putting a lot of the lottery winner's money in. And I think at the beginning it's possible that this was such an extractive and lucrative industry actually, um, that they were making a fair amount of money on it. Uh, it's just that it seemed to have been terribly mismanaged. Um so Cheddar. Once the Cheddar money started allegedly disappearing, Um that that toppled bunch of other dominoes which led us down the road. I was just telling you about.

So Simon, there are four kind of main characters in your story here, but the lottery lawyer, and three of them have already pled guilty in their waiting sentencing. But the lottery lawyer himself, he's going to trial, right, give us a sense of the timing one once that can occur, How do you what's the expectation about how that might play out? Yeah, So the trials in um New York Southern District in about a week. I think jury selection

is like in a week. Um. The looks like um at least a couple of co conspirators will testify against him, his own brother in law, who's a very careful, colorful character. He's a cosmetic surgeon in Long Island, UH called Scott Bleier, who's handle on Instagram is Dr b Fixen and definitely worth a look if you're on Instagram. He will be testifying apparently against his own brother in law and a

whole separate aspect of this. I would say this, between all the words I talked to and people are involved in the case, everyone is shocked at this guy. A lot lawyers even going to trial. He was fired from his law firm, Risken Rattler, which is based on Long Island, as soon as the allegations hit that the wire tops are incriminating. There's three other guys who played guilty. Um, but his lawyer, I think he my guest is he's trying to clear his name because even if he if

he takes a pleas I don't think he's worried. He's never gonna work again. And his whole reputation was based on integrity, right, I'm gonna help you manage your money. I'm the good guy. And his record was spotless until then. He seemed like a family guy. He just seemed pretty

milk toast. I think he's going to Hell Mary to try to clear his name, and the lawyers, basically, I think, are going to argue that he himself was scammed by his co conspirators, that he invested money in a bench of that bunch of bad schemes and it wasn't in fault.

The problem is that he, unbeknownst to the allegedly unbeknownst to the winners, was taking a cut of the investment in terms of in like these things like Cheddar, capital of these businesses, and was allegedly spending it on you know, classic cliches like sax fist avenue, uh an suv like name that of stuff, and so might be a tall hurdle for them to get an acquittal. All right, are you gonna? Are you gonna follow the trial? I have

to committed. All right, We'll have you back when we get to get some kind of resolution there to the trial. Simon van Zylon would freelance reporter for Bloomberg business Week, joining us on the phone from New York City. His story. Simon story is featured in the Heist issue of Business Week magazine that's available in news stands, on the Bloomberg

and at Bloomberg dot com slash business Week. Apparently that is the Heist issue is an annual issue for Business Week, widely anticipated for all the crazy stories that are reported, take up dealing mostly with financial Canary. So good, good stuff there. This is Bloomberg. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. All right, pretty remember this Archegos management story from a few months back, Bill Lang and those guys

the Bella, etcetera. Yes, lost, like you know, jillions of dollars, twenty billion dollars in a matter of days. It seems like billion. I'm sorry, twenty billion dollars. Well, he's got he's got a lot of legal problems. He's got criminal issues. Now he's got former employees suing him saying what about my bonus? I didn't steal any money. Greg Farrell, investigative reporter for the Legal Enforcement Team from Bloomberg News Joints, is live here on our Bloomberg Interactor Broker Studio. Greg,

this guy's got a lot of legal issues. It just seemed to be mounting up. Now he's got employees coming back and saying you gotta pay me my bonus. Is

that a thing? Yes, So today's lawsuit is from one former employee, but I guess I would guess he represents a number of others or others will join him because the same thing happened to him, to them that they were guaranteed any money they put into their deferred comp program over a period of several years would never go below par, would be backstopped, etcetera, and only have a blow up in March of last year. I have to ask, though, I mean, well, let's start with Paul here, actually, because

I have to ask about the bonus dynamic. I want my bonus and I want it all, and I wanted in cash. I mean same. But but you've listen, you've worked on Wall Street for ages UM, and I have to ask about how this perhaps bonus structure is different from from some of the banks. Yeah, it goes one of two ways. One is you just on a completely discretionary bonus and it could be zero or any number above that it's not a negative number, which is another

whole whole issue. Or you're on under a count contract and you only five million dollar guaranteed bonus, maybe even plus expercent of the fees I bring in something structured like that. But when there's a case of fraud, as in this potential and potentially in this case, what's the play? Is my call? If I'm the employee, I just say, hey, I didn't do anything wrong. Why can't I get my

money back? That's one elemented. Another element is that this is a good time for form employees to graph for room because Bill Warring has been charged criminally, so that bolsters the case is at the U. S Attorney Manhattan has already accused Bill Wang and another top executive of criminal behavior. This will support in a civil suit like this. But then you get to the question of let's say

he wins, where's the money? Is their money? And also the value the purported value of the deferred comp program was was like five million dollars as of you know, end of Was that a real number or was that the result of a lot of the same gamesmanship that Wang was accused of, you know, uh pulling off in the two years that led to the implosion. So Greg, what does he have to do to get rid of these charges? Is just a matter of paying them their bonuses?

Right now? This is not a priority. Criminal charges are always a priority because you could spend the rest of his life in prison leal hassles and you know, chase the money, you know, whether or not I'll pay you. That's completely secondary. So this is not good news for

Bill Wang. But the the important thing, the thing that really threatens him in his CFO with the criminal charges of a few months ago, there is a concern or I don't know this, but it's possible that you know, prosecutors don't always prosecute everything that someone allegedly did wrong, only the things they can identify. If this gets the attention of criminal prosecutors and expands leads to an expansion

of the case, that would be trouble. But at least as of now, this is uh definitely a secondary matter in terms of Bill Wang. You know, civil is just not this, it's not a serious as criminal. What's the status of his criminal uh situation with the government is or an expectation for a timeline a plea deal or a timeline to actually going to trial the way So there's already been at least one hearing on this, and

there's gonna be another hearing in August. I think it's expected that A. I don't think there'll be a wee deal. They both in the CFO Patrick Alligan, through their lawyers, you know, planned to fight this um. Secondly, I think given the complexity of this and the fact that we're now in the summer and nothing's really going to happen until September, suggests that in the complicated like this, if

there's a trial, it will be next year. That's not a guarantee, but you know, ballpark figure it will probably be next year. And it's his defense, I didn't do it. There's two defenses, so good question. The main charges against Bill Wang and Pat Halligan from two months ago were

one market manipulation and two lying to the banks. Um. In terms of the defense of market manipulation, you know, that's you know, there's a lot of gray area there because you know, yes, he didn't let each bank, each counterparty know what he was playing to do, but he was trading openly. He was trading in stocks he liked, trying to get their value up, as any investor does. So I think there's gonna be a robust argument as

to whether or not market manipulation, you know, can be proved. However, it's a federal lot to lie to banks, and that's going to be much more you know, I wouldn't say slam dunk, but a much easier case for federal prosecutors to make is that you can't lie to banks, even if you didn't cheat them and they didn't lose money, you cannot make a false representationation to them. And that's going to be a much more difficult challenge for both

those guys to to defend against fascinating stuff. Thirty seconds. Has someone else gone through these kind of proceedings before any kind of precedent here? No, I think the this bill waging the criminal case is highly unusual. The market

manipulation theory. That's why I think this could get interesting in court, and that he might be able to mount He's got a very good lawyer, a legitimate defense, so you know, uh it really is you know, uh, whang is sort of a one off, right, all right, good stuff, Gregg Farrell, Thank you so much for joining us. Greig Farrell, investigative reporter for the legal enforcement team from Bloomberg News during us here in our Bloomberg Interactor Broker Studio Journal.

Yeah but you let me drive. Oh no, no, no no, no, honey, please I drive. It's a good question. Drive this good drive to the globe. Well dry up on Bluebird Radio. Crazy intra day of trading is how I'll put it. I started the day here with greedy and the markets were looking down a couple of percent, and here we had the sp flat. We even got a one and a half percent increase on NASTAC. That is what I call intra day volatility. How does the professionals, how do

they view this type of alatility? Sylvia Tablonski, chief investment officer of Defiance ETS, joins us on the phone from New York City. So, Sylvia, when you see price action like today again down big now trying to claw our way back to positive territory, what do you take away from that type of price movement? Hi? Actually great to be here today. Um. Look, I think intraday volatility in

day chaos is another good way of putting it. I think at you know, what we're seeing now is is just sort of everything um coming to a t here, Right, We've had these headwinds that are you know, feeling sort of obvious to us. Um. We've been worried about inflation, you know, being worse than than we expected. Turned out it wasn't transient. UM, it hasn't come down as quickly as we thought it would. There were supply chain issues

which haven't fully resolved, geopolitics, aggressive FED, UM. You know, all of these, all of these things have have been things that we were talking about, and you know, lo and behold that they have now hit the market and we have all three major indices in UM you know,

bear market correction correction territory. So what I think is happening now though, is that you know, you're starting to get a rethink amongst investors, you know, because we have had these massive corrections, but in conjunction with that, we've also had reduction hiring, less spending on corporate and personal levels. UM. You know, some of the stuff is showing up in the commodity prices softening a little bit. So you know, I think in the nearest term we get that range

found volatility. But investors that you know, have been waiting for something might be thinking, you know, we can't call the bottom here, but is it possible that the market has done some of the work for the FED, and is it possible that putting that first dollar to work

makes sense here? Sylvia. Are we still in a dynamic where the FED is almost rewarded I would, I would say, or seen as doing its job if the markets drop the idea here being that the FED put that's been I think a staple of the markets for let's call it two years since March, the evaporation of that FED put. Is that still the badge of honor that it perhaps

was three or four months ago? Great question, and I think I think that there's there's been more of a separation now, which is which is perhaps what the FED wanted. But I feel like, you know, another way to look at it is to say that in terms of, you know, that last inflation number coming in, and if acting with SEF and you know, starting to see the easing and things like jobs softening, a job demands softening a little bit,

commodity softening a little bit. You know, we haven't seen it in the numbers yet, but if if you sort of look at it day by day, it is starting to take a little bit lower um and all three you know, industries pulling back in a major way. UM. You know, markets again tend to do some of the work for the FED. So so I think that the market is sort of pricing in that the economy is perhaps on its way into a small recession, a large recession,

some sort of correction. So so to that effect, I think, you know, we might be close to an end at least in pain in terms of the amount of frost that has been taken off of the market. SOFA. One of the many reasons we're like chatting with you is you often time disclose kind of what you're doing in the market. And I see here in your notes that

you bought some Delta stock. Now that can't be because the smooth travel we're experiencing here in the US this summer, is this, you know, just a really leveraged reopening play for you. Yeah, it's uh, it's it's probably a terrible experience to us fly that from these guys these days. But you know, what I think is interesting about the airlines is if you look at the T s A numbers. You know, we heard a report today that this weekend

was essentially a record um in terms of travel. So and we've also seen you know, the data and the members in terms of m consumer spending sort of lightened up in the area of goods and it went over to services. And they've had this you know, thirty percent plus level of inflation you know UM in the presidency slash price appreciation that they have been able to price onto the consumer. So I I think that, you know, to your point is a good way to put it into.

It's a sort of a leveled bet on on the reopen trade that I think is going to UM play off in the next couple of the next couple of earnings or parts. And you know, the Delta CEO came on and said that they're they're seeing it right. They're almost back to pre pandemic levels. UM. Some some days they had higher bookings and pre pandemic levels and they increased their UM operating margin outlook, and UM increase their

sort of revenue outlook. So so I think that in terms of like, you know, sort of where do you go now, UM, it's it's it's a price that's certainly been hammered enough, but it's got some opside in the short term. So I did double in Delta UM as

well as some semi conductors in tech. Well, speaking of semi conductors in particular, Paul and I were discussing a story earlier of the US dissuading or trying to dissuade a SML, the Dutch semi conductor maker, to give some of their technology, some of their really uh sought after machine making technology sects basically for chips to China. Sar.

I'm losing my words here, but basically it's such a complicated story, and it kind of seems like there's this narrative still going on in the background of Biden administration trying to bring on some of that chip capacity back into the state and away from China squared, the chip story, the inflationary story, with the geopolitics of it all for us. Yeah.

So so I think UM in terms of what's going on in terms of bringing you know, bringing chip production factories UM on shore, I think that, you know, if I look like far far out, because I just think it's take a really long time to actually play out. You know, that ends up being a win for companies

like um intels for example. But in terms of just just sort of separating that and geopolitics, I just look at semi conductors as UM almost consumer staples in the in terms of you know, our feature innovation technology, whether it's five G, whether it's electric vehicles, artificial intelligence, machine learning, you know, metaverse, web three, UM, your new coffee baker or whatever it might be. It it requires a chip.

And I just think that you know, UM hit to a lot of these names that have loads of calok in the video, I mean roads of cash on the bound sheet, well run companies. UM, they're good places to be. I think it should takes time to get you know, performance back all right, Sylvia, good stuff. We always appreciate chatting with you. Sylvia Jablonski, Chief Investment Officer, Defiance E t F S joining us on the phone from New York City. Here. Thanks for listening to Bloomberg Business Week.

Download the podcast on iTunes, SoundCloud, or Bloomberg dot com. And you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Search to Bloomberg Global News