Bonds, Inflation, and the Equity Rally (Podcast)

Almost didn't even notice that, and then um talking about dependency on data and didn't give a straight no to the question of whether they thought about a pause in the meeting. UM just generally, you know, he thought financial conditions were tightening, which we're still not sure what index

he was looking at. UM that may change after Friday's jobs number blew away the estimates and showed that this US labor market is still red hot, regardless of the West Coast pink slips that we report on every day. Let's bring in Liz Capit McCormick to talk about this, Chief Correspondent Global Macro Markets for Bloomberg News. So did Friday you know, change the path for the FED. Well, I think you want to hope that even despite pal sounding devish, they had a plan. They kept saying higher

for longer. Maybe it doesn't matter whenever comes next, is you know, whichever way the wind blows is the way they're going. I know it's a rough road, but I think Friday kind of locked in. You saw a lot of the street economist say, you know, those who are forecasting two more three more quarter point hikes said oh yeah, we're good, you know. I mean, it was just so strong all across the board. You know, it's kind of head scratching. But no one kind of wrote it off

as like a cork or something. So I think it definitely figure out what it was because a lot of people did try and write it off. I didn't see any credible arguments. Um, but it wasn't just the most recent month. Um. They also revised previous months higher. It just looks incredible. Yeah. And I was listening to our Mike McKee, and he went through it all and he didn't couldn't find any reason to like write it off.

You know, like you said, the revisions were higher. I mean, maybe some people say even if you took out some of it, it's still strong. Right. We want to be kind of below one fifty. I mean, not that we want people out of work, but to kind of cool the labor market a little and bring inflation down further. What does that the mean for the bond market reaction? I think it was up like sixteen basis points on the front end of the curve just off that report.

The equity market was kind of like, but the bond market was very much reacting to it. But even another twelve today, fourty on the two year, exactly one on the tenure. But it's still within its range. Yeah, but look at the terminal rates. So finally, like like Matt was saying Wednesday, oh, people thought pal was kind of dubbish. The terminal rate, where the market sees the peak for the Fed, came down even further. They were like locking in fifty basis points the cuts coming by the end

of the year. Now things have changed a little. They got the terminal rate back up towards like five point one percent, which is about around where the dots are the FEDS dots, and there's less than half a point of cuts in there now. So I think the market kind of got a little religion on Friday to say, oh, you know, maybe we've gone too far, you know, maybe we kind of we're wrong footed, and the impression of pal or even not even if we were right now,

these jobs data is so strong. Now we have another jobs report right before the next FED meetings, so let's see what happens there. We have the inflation numbers. But I think the bond market kind of got a gut check, you know that maybe we've kind of leaned too far, Like what's the new trendy thing now they're saying no landing, you know, you know, some saying soft landing. Maybe there's no landing. I don't know about that, but I think

the barn market, at least that is hedging. And we have a lot of supply this week coming with the refundings and about nineties six billion. I was gonna say for debt auctions to your point, that is a lot of new supply addition to a lot of the M and A deals by the way, that are I think being funded mostly by debt. Yeah, um, what does that then do? What do we expect this week? Well, it's

been crazy this year. The auctions have gone like crazy good, you know, not that I don't want them to go well, but like so many in a row, the yield came below that where it was trading right before the bidding, which is a sign of strong demand. So people are saying, maybe not this round. Nine billion, yields aren't as high as they were. Um, now we think the Fed maybe higher for longer. It's going to be a real litmus

test of how strong is this demand for treasuries. So we'll see, well what does it mean to I mean if if you know, bond auctions are going great and m and I EM and a activity picks up, and um, you know we're adding five thousand jobs a month, or even if we're adding two jobs a month, um, and inflation is coming down, then the Fed is pretty cool on its um you know, wandering path of of devishness. Well, but is deva fishness like the market was pricing dovishness cuts?

You know, should they wander to cuts. There's a lot of people who say, like, why does the market price that in it's just hopes brings eternal in the equity market or in the in the fixed income market. I think so, and they have to be leading and to be all. To be fair, there's some optionality in that, right, if you're a trader, you got a price, let me hedge myself. There's some risk of cuts, so that's gonna

bring the implied rate in the futures down. Um. But I think, you know, it's I hate to say, like Pavlov's dogs. The market is so you know, trading the pivot. We've got to get hitt of the pivot. And they've been wrong a lot. Um. Not that the Fed hasn't been wrong on many things, to be fair, but I think the market it just thinks, like the old playbook,

the FED has to pivot. But you know, if inflation, even if it comes down four percent, is way above two percent, you know, and if the growth is going okay and we don't have a bad recession, why does the Fed have to cut anyway? You know? So I don't know. I think we could be sitting here in December and saying, good point, Wow, the Fed didn't even cut this year at all. They just stuck at five. What ever, that would be a new thing as long

as the economy is humming on all cylinders. Um, if inflation is coming down, we're adding jobs, m and a activity is good, Um, you know, earnings aren't a drop of then they might as well leave it where it is until we have a problem. And Pal said on Wednesday, like, we see more risk to turning to you know, easy policy too soon than going a little bit too far because we can always cut later. And I think that

was a very telling point. You know, they want to air on the side of maybe going a little too far quote unquote then turning course too fast and having to restart. They don't like that stop stark kind of thing. But then how do you factor in, say the e C B, the b O E. If you're looking at what could be some very volatile days ahead for for the boon market, specifically in the guilt market, how does that translate or at least affect the treasury market. Well,

it was interesting last week. I thought Laguard did a nice job at a press conference. I thought they were hawkers that market rally too. So there's a little bit of this uber euphoria going on all around. But if if she was saying there they intend to raise rates fifty right, she was, Yeah, they're not. They're not locking in there, you know, right, Well, they they can't write a legal contracts were for sure. I'm just saying, like you know, across the board, you didn't really hear forcefully

hawkish language. You heard a lot of optionality, which I'm not saying that's the wrong move. I would want optionality too. I'm just saying the way the market interprets that is devishness. Well, and like you said, the central banks have to kind of set the stage, right, even if the stage means a couple quarters away, I don't think anyone could argue. We were talking to some of my colleagues that bond

ball has come down a lot. That's a good thing, and people are saying, at the least give or take two more hikes, three more hikes, what the ECB does, whatever, we're getting closer to the end than last year when we had this big hill to climb of tightening, right, So I think bond ball coming down is telling to your point that, yeah, they're getting closer to the end, whether of FED just kind of hikes to whatever's terminal for them, it just sits there for a year. That's

also good for all. If we know, hey, FED sent still and maybe they cut. I'm not predicting that, but we know, like somebody was saying to me the other day that last year, every meeting, you're like, is it is it fifties at least? All that has kind of narrowed down the range of outcomes for the FED, the ECB,

other central banks, I would say has narrowed. But so um, I think last year, late last year Daniel D. Martino Booth was telling us she thought Powell was trying to kill the FED put and you know, you point out that everybody wants to trade the pivot. You know it's gonna happen, it's gonna happen, it's gonna happen. It never happens. But this isn't killed. He's not putting it to bed

with that kind of language. None of them really are. Um. They're all kind of leaving it open, and that leads to looser financial conditions, which could lead to more inflation. That's the problem, right, right, And I think you're right, Like, no one wants to go against the Chairman of the FED, but everyone was kind of like, what way financial conditions are tighter than a month ago? What are they looking at?

So I think, yes, he's right, long run versus last year, they're tighter but that you know, some people are saying like things are heating up again, the housing markets picking up a little bit, like they don't want things to heat up again, right, which is inflationary? I mean not for nothing. They've brought inflation down a lot, but it's

still has more to go. And a few people smarter than me have said, you know, the hardest nut for inflation is the final like few percentage points bringing it down, getting it from the uber high to hear, you know, took a lot like these last five pounds killing, so true, so true, Poor, poor poor Matt on the last five pounds. Uh. Liz McCormick, thank you, as always, Chief Markets correspondent, Um. She kind of does a little bit of everything, bonds,

dollar stocks, anything you need, right, Matt. Yeah, and we're very happy to have her. Thank you, very She wrote the cover story as well with Katie Greifeld on the latest edition of Bloomberg Business Week, and what a timely cover story that is definitely check out that don't the FED addition or we are fighting the FED addition. M let's bring in pre a miserable She is managing director and global head of Rate Strategy over a T D

securities Pria. What was your take on the incredible roller coaster ride that we had last week after the FED um and the non farm payrolls. Sure, thanks for having me on, It's been quite the week. Um So I think, you know, I think the market is dealing with both uncertaintly on the economic outclook, and that's what we saw with both payrolls as well as i s M very strong numbers. We're not seeing signs of slowdown there at

least in the labor market or even service demand. Actually was more interested in is M services because I think that's going to be a leading indicator and so far not really seen moderation. But then the other source of uncertaintly is the FED, and there was there's a clear lack of urgency from chap out from the Fed to

keep hiking, and he was very noncommittal. I mean, I was surprised a little bit with the re action on Wednesday because I don't think he was devilish per se, but he didn't push back on the using of financial conditions that we've seen since December. He was very noncommittal on the end point, like where do they end hikes and sort of left it to the data, so I

think it's going to really come down. I know there's a lot of focus on tomorrow's comments by Chepower, but I think their data dependent and it's very hard for the market to get you know, exactly where the end point is. We're gonna have to watch the economy and inflation.

I think there's a lot of optimism that inflation will keep declining, and our view is it's going to be sticky, and so you'll get a series of twenty five hikes as the Fed ends, but they don't end what the market was pricing in on Wednesday, just one more high week. Expect two more hikes, possibly chance of another twenty five in June. If inflation sort of flatlines here and doesn't keep declining, let's put some numbers on that. Here, we're looking at ten years, Matt pointed out higher about nine

basis points three sixty one. As the bond market is factoring everything you just laid out is kind of being a little wishy washy and just kind of sticking into this trading range. Why aren't we seeing it break out? I think the tenure is really tricky, right, because that's your view on fat funds, in a way over the next ten years, and so that incorporates a slowdown you know, later this year, next year, it incorporates rate cuts at

some point. I mean, even if we get a soft landing, the FED is not going to keep rates at five or five in a quarter. They're going to have to bring it down. So I think the tenure likely stays in a range. Seventy five is the range we're thinking. The front end I think can break out. If we find that inflation is sticky, UM wages are staying strong, then I can see front endry. It's going back to the upper bound of the range, maybe even moving higher

because we realize the FED is not cutting. We have a lot of cuts priced in for this year and next year. I think they can start to get taken out. That terminal rate can go higher than where it is right now, like just above five percent. We can get to five and a quarter. So the front end can absolute selo. The tenure does get tricky because it's a longer. It's your view over you know, the next ten years.

Why do you think the FED is going to have to cut If we're adding jobs UM at such a fantastic pace and UM we don't see such a huge drop in earnings. I think right down right now, we're looking at a three percent drop in earnings last quarter. Um, what's gonna be the impetus for the cut? Great question. So I'm gonna go back to the Fed's dual mandate

inflation and growth. So our view for rate cuts. We've actually got a lot of cuts penciled in for next years because we're looking for a recession in the base case, and we see inflation I said it's sticky, but by next year starting to get within the three two and a half percent range. So cutting for both sides of the dual mandate. But let's say we get this what we're calling immaculate disinflation scenario right where inflation continues to fall,

soft landing every risk asset to the moon. Even in that AIO, I can see the Fed cutting rates, which is embedded in their dot plot. Right, They've got a hundred basis once next day and the year after. That's not for growth reasons, that's for inflation reasons, and because the FED wants to get at that point rates away from restrictive into let's in neutral territory. So if inflation gets back to two and a half by the end

of the year. I think there's a case for the FED starting to cut because FED funds at five or five and a quarter is too high. We should be closer to two and a half or three percent, So that's the reason to cut. The timing the peace would depend a lot, whether it's a recession or a soft landing scenario. But the rate cuts is just if inflation comes back down. Whenever it does, I think the FED then starts to signal rate cuts. All right, Prea, thanks

so much for joining us. Priam Isra. They're managing director and global head of rate strategy over TV Securities. We love to get her take on the FED and the fixed income space, and we hope to have her on again very soon and talk to her a little bit longer. Okay, let's bring in uh Andrew Merrick right now for Raymond James. He's the VP of Equity Research and also has many I'm sure thoughts on chickens and eggs and all. Yeah, do you also spend so much time trying to understand

the eggs. Well, it's a real chicken in the eggs situation. You're perfect for this, all right, Let's ask about, um, what your reaction was to last week, because just I spent the whole weekend talking about last week's news with people who don't even participate in markets. I mean, it was just that dramatic. Um, with the press conference on Wednesday and then the job's number on Friday, does it change at all your views what we saw? Well? So

in the gaming sector specifically. I mean, you know, the economy and those types of reports are going to have some impact, but gaming has proven to be a pretty resilient form of entertainment when it comes to economic conditions and things like that, because when you're buying a game sixty seventy dollars, you get quite a good value in terms of the number of hours of entertainment out of that.

So hell yeah, sometimes I'll be playing like red Dead Redemption and realized that nine hours have gone by hundreds of hours And that happens a lot, by the way, you know, and with call of duty, and uh, well I used to be a big Halo guy. Um, just flies, do you play cretty? Do you play any games? Don't? But I have to say, when, um, what was it called red dead redemption? Redemption to red dead redemption to his first release. I think it was I want to say I was on the video game beat and they

gave us like an exclusive trial or whatever. It was like all these other video game analysts and everyone was so excited. It was like a bunch of dudes, and I was just like, why am I here? I actually asked myself the same question when I'm asking me when I'm playing Red Dead Redemption? So, uh, you think Activision, Blizzard and what are the other names in the gaming industry that you follow? Yeah, the big ones right now are Activision, Blizzard, e A and Take two Interactive, And uh,

you think they're set up for continued games? Yeah, I think that. You know, we had seen over the past two years since the pandemic, there was kind of a moderation in the amount of time that people spend playing. So there was a big spike around the pandemic onset where people were cooped up found gaming as a nice social outlet when you couldn't see people face to face, And as things started to reopen and get back to normal,

people played a little bit less and less. Now I think we're entering a more normalized environment for demand, where the success of the companies and the stocks are more dependent on things like how good are the coming games, how good are the current games, rather than things like are people playing less those more exogenous factors. What about meta I mean, how long until we start spending all of our time in the metaverse? Yeah? The the new frontier of VR and the metaverse. I mean a lot

of these games are pretty metaverse already are. Yeah. I think that's one thing that the traditional publishers, if you want to call them that, the activisions and take twos of the world, would say, is that we already integrate so many of those digital community focused aspects that the metaverse really, um, the metaverse really advertises already in our games. Our games are already massively online multiplayer environments that are

living and breathing. Um. I would say probably the only big difference is that you're not wearing an immersive headset to play Call of Duty or Grand Theft Auto. At this point, I think that there are still probably some gains to be made on that virtual reality side. It will probably be a little bit more incremental rather than big leaps and bounds, um. But I think that that's something to keep an eye on, maybe as like a

five plus year driver for the gaming space. Isn't there a story out somewhere that a lot of the games from uh I believe it's activision, like Star Wars, for example, has been delayed to the tune if I want to say six weeks um, what kind of effect does that have on the bottom line for life's activision or take two or whatever. Yeah, so the Star Wars game the

e a game um six week delay. When you get those smaller delays like that, in terms of the bottom line, it can move a quarter, like the Star Wars game was moved from the end of one quarter to the beginning of another. But in general, in terms of the expectations for the lifetime sales of that game, doesn't really affect it too much unless you think that the delay is a signal of the upcoming quality of the game,

which we do not. UM. Where you start to get into the more um the delays that more effect the bottom lines are those ones where the games get pushed by a few months or even delayed and definitely because the project isn't progressings as they liked. We've seen a couple of those over the course of the pandemic, where work from home kind of up ended the development cycle.

But as we've gotten you know, used to work from home people back in the office, we're seeing less of those major impactful delays that would really hit bottom lines. You seem um pretty grounded, uh for someone who has a minor a nuclear engineer and M I T. I mean you talk about these incremental changes, are there any like moonshot um stocks out there that you like? I'm just thinking about that because, UM, we heard so much earlier this year about the uh possibility to uh create

basically a perpetual motion machine with vision or fusion. I can remember which one it is. UM and we and we see these big bets at like Facebook, you know, putting ten billion a year or whatever into the metaverse, but it's so far off right, Yeah. And I think that Facebook specifically, like they're interested in that metaverse project because it is kind of what they view as the next major step change in digital life and digital interaction.

You know, we went from offline to the internet, and now we're going to go from the Internet to the metaverse. I think they want to be owners of of that change in the way that some of the platform owners that Facebook is not a part of at this point have kind of owned that shift to the internet. So again, you know, I think it's more of a long term shift, but it is definitely something to keep an eye on, given the sums of money invested and given the promise

that the metaverse holds. So but who are the big competitors? Is it just roadblocks? Is there somebody else that you

think is going to be a winner here? Yeah, roadblocks is kind of what investor view is kind of like the pure play UM in metaverse at this point, I think you're probably going to see a lot of companies who come up through the ranks of venture funding UM who probably aren't household names at this point, who are specialists in the metaverse in VR, in that kind of digital interaction that may become a little bit out of

left field. I think that's a very interesting space to to keep an eye on, and you know, we'll be we'll be following up with great interests as well. In our last thirty seconds or so, here, how did you go from a minor in nuclear engineering? Like why aren't you not like a mad scientist somewhere at m I T Well, you know, the the job's outlook at at nuclear fusion at the time was was not as promising as it is now. The old saying was, um, fusion is twenty years away, and it has been for the

last sixty years. Um. But now now we've got it, and uh, you know the eggs on my face. You know, well, we're glad you ended up where you are because now he gets talked to you in the studio and hope we can get you back in here soon. Andrew Mack their VP of equity research over at Raymond James. Now let's get back to the markets here and bringing Jay Hatfield, he's the CEO of Infrastructure Capital Advisors. And finally we

have a bowl on the program. Um. We were just talking about David Costin lowering his expectation for the SPI to four thousand, three months out and at the end of the year, so he doesn't think the market's going to do a whole lot of anything except for drop. Um, why are you and I believe you have a higher target ten percent higher target for a year and why are you so bullish? Jay? Thanks man Critty for having me on. First of all, we're bullish because we're far

more optimistic that inflation. But not only is inflation declining, but they were actually in a deflation and the reason for that is that we do have an inflation is very, very similar to the seventies. In the seventies we had to gigantic energy UM crisis is in seventy and we had loose monetary policy and high inflation and housing. It's exactly what we have now. But housing has rolled over UM. It's been down five months in a row. So that's why our index CPI dash R is negative UH annualized

four pc over the last quarter. And that's really what's been we think has been playing out so far this year is the rest of the world is kind of coming along around to that view. Wait, what's the index CPI dash R. So it's a real time CPI index. Would be happy to license it to Bloomberg and you can put this is a proprietary hand. You have the infrastructure capital advisors and does it remove UM, how housing or how does this differ from the typical CPI index.

It's it's not very exotic. It's really going back to do inflation exactly how it was done before when they switched from just taking housing prices and then having a UM clawed measured measurement of owners equivalent rent, and an actual rent problem with that is then you introduce the twelve month lag because housing prices lead. Of course there's a survey that slows it down as well, but it

leads the BLS index. I think last time I was on you can verify that on the terminal and do aggression sevent correlated, so you get the information twelve months in advance, and it's sevent correlated. So the FED is focused on the labor market. In certain markets, labor is important, but when goods are um and particularly energy is skyrocketing and then dropping goods actually drives labor or wages more

than vice versa. And we think that the FED will eventually come aout around to that view, and in fact, Leo Brainer you mentioned something along those lines. Unfortunately, she's going to potentially move off the FED bet. So there are some doves on the FED. So we think by May they'll halt just as they said they would, and that will be a big catalyst for the market. Well, if you're looking at the inflationary story, how does the

commodity standpoint factor in there? For example, one of the things that Tom Keen and I were actually speaking about earlier on Bloomberck surveillance was why is Brent crude with all of the bullish reopening themes not at a hundred right now? Why is it? Well, now we're looking at seventy handle. What is going on with that commodity? Well, Um,

the real key driver is the weather. So we're four and a half degrees warmer in North America, which tracks you are pretty closely as well, UM, and that's a key driver during this more than last year than average so um, but even the near term average or well well above normal. It's a fifty degrees in Manhattan right now, So during this season, heating oil demand is really critical. So that's taken um some edge off of it. And really the Russian situation, oil is fully fungible because it's

easy to transport. You can do rail, you can do um trucking, shipping, and so that really hasn't been a big impact. And that's really why, um, you haven't seen a big increase. But I would also focus on natural gas. It's off from its highs from the beginning of two and keep in mind and the FED doesn't seem to focus on this, even though they have a paper that validates it. There's a five percent bleed through from energy

prices to core. So if you get natural gas down, that's going to be a big help to inflation coming down. But nobody seemed to focus on and they don't really care about natural gas because you don't have to fill your car up with it. It's half of the energy costs of a consumer comes from natural gas because it prices electricity as well. So that's a big bullish factor that nobody's talking about. As well. Also helps the consumer

because they have more discretion discretionary spend. By the way, when you're trying to figure out what j Pal and Co. Are going to do next, it sounds like you have a view on what the Fed should do and what the Fed does do. Right, Um, what changes in your mind what they should do to what they do do? And I know I just said do do? But I mean, is it a political issue? Is it a lack of independence?

Why do they you think make these mistakes even though they have the research backing up your view on what they what they should be doing. Well, it is a little bit of a political issue because labor economists tend to be Kinsian, which tend to be Democrats, and Biden has appointed five out of the seven permanent members. But having said that, even some of the Trump and appointees were also Keynsian, so monitorism is really not well represented.

And by the way, you know, if you're just trying to make money in the market, you shouldn't be either. In some markets, a monetary policy dominates, like when the FED increases the monetary base and then down twenty that's going to be the key factor. If monetary policies flat and you head into a pandemic, then you better be looking at the labor market. So for us ordinary humans, you just have to make money. It's better not to be too ideological. But there are Keynesians clearly dominate the

FED at this point. They're too focused on the labor market and not enough on energy prices and housing, and they created the housing bubble. So that's one reason we developed CPI dash are it's the smoking gun for bad FED policy. They they had just followed that, they would have started tightening in two thousand twenty and not in late Are you at all factoring the debt ceiling when you look at monetary policy the last time we have

kind of a debt ceiling crisis. We were in a tightening e see me a easing phase of the economy. Square the two for us, Well, there's no doubt that that's a big risk for the stock market if we get closer and closer to a showdown. But there is a factor that rarely gets discussed, definitely not in the media, and that is crowding out and I would go to

green Span is really the expert on that. So just out of control federal spending is a problem, and there's only one mechanism in federal law to limit that, which is the debt ceiling. So the notion that we should just automatically increase it because we owe the bills, I think is a little bit overblown. But we're not worried too worried about a crisis because the problem solvers Caucus, which is a bipardon artisan caucus, has pretty much said they're going to come to an agreement, and I think

that's the right outcome. You know, obviously you don't want to default, but you shouldn't just ignore the only limit that we have on federal spending. Whereas the state's almost

universally have balanced budgetmendance. So we think that in the long run will be good for the stock market is a risk factor and one thing to know too about We have a target for the SMP, but that's a year end target, not a end of February target, So we're going to have a lot of volatility and we think will be a little bit range bound until the FED pauses, and this will be one of the factors that you know, bears will use to you know, as

an excuse to trade the market down. Do you think that, I mean with a year end target on the SMP, does that I mean we're gonna have also eight barrels of m W t I and hundred dollar barrels are brent. Yeah, that would be the midpoint of our range is ninety dollars per per barrel. And keep in mind, O, that's still off the hides of a hundred and twenty dollars.

So it's not going to be a huge problem for CPI because do annualize all these increases and I would just go back to natural gas where we're to fifty that's where it's been. That's like near the lows for the last thirty years. The natural gas, it doesn't go into your car and it doesn't sort of go on this wheel that everybody gets excited about, but it's very critical because the prices all electricity United States, so you have the natural gas part of it offsetting the oil. Yeah. Alright,

J great having in the studio. Thanks so much for coming and joining us. Jay Hatfield their CEO and founder of Infrastructure Capital Advisers. He talks about his um proprietary inflation and x CPI dash R, which you can get on his website Infra cap Funds dot com. Now it's the moment you've all been waiting for. We're gonna focus in on the balloon. Okay, Uh, let's bring in West Cassova. He is the Bloomberg Big Take podcast host and uh,

you know, Paul and I love these Big Take stories. Um, kind of the first thing we talked about when we get to work at the morning every day, and I assume that Cretti reads them to cret does read them and I big take. Well, West, are you zooming in on this big balloon? What's the story, uh with with the podcast today? Well, we actually just try to get to the bottom of this whole thing. You know, last week when that thing was kind of floating above mantenna,

and it was making its way across the country. A team like this kind of curiosity, little alarming Chinese balloon with a lot of equipment attached to it, but I don't could quite know where to make of it um And then it became pretty clear that there's something very unusual about this situation. I mean, it's big, Like you think about these weather balloons, are even those kind of big balloons that can kind of take pictures of sight.

This thing is as big as two or three school busses, just enormous and unlet's the payload you're talking about, right, not the actual balloon, because I keep seeing references to the balloon being two or three school busses. But the balloon isn't what we're talking about. We're talking about the thing it's carrying, and it had a lot of different kind of equipment. They still want to know exactly what U And then there were these growing calls to shoot

the thing down. Well, you're gonna shoot down three school buses? Who knows where it's going to land? So well in Montana, so it won't hit anything yet, never tell, you can never tell. And also you know when it did eventually come down and they shouted down it. Uh, you know, spread debris for a seven mile radio, So that's a lot of things that could have hit. So anyway, it cuts across the water of South Carolina, and they ordered

the things shot down by fighter jets. And now there's this whole incident between the US and China about what that thing was. China claims it was a civilian science balloon that drifted off course. The US says there's no way that's true, that it's not plausible. And so tensions between the U S and chinnel already high, are how higher as a result of this? Wait? Well, I'm confused.

Feel I feel like airspace is something that is monitored by the f a A all the time, and if you go even higher, I'm assuming by NASA at some point. Why didn't anyone see this on the radar? So big? Yeah? We talked, Yeah, we talked about this a little bit on the podcast. UM I talked to Rod mathieson Neverosities all of Bloomberg's government coverage, and she, you know, has been all over this story. And the interesting thing about these bloons is exactly what you're saying, is, you know,

we have satellites looking down. We have everybody looking up, and yet China seem to think that either this wouldn't go you know, like that would go unnoticed, or maybe they didn't intend for it to go there. Um. And one reason why these blons are still used is that they are sometimes able to evade the usual means of detection. They're hard to hard to see. This one, though, is so huge they it was impossible admit. And to be clear, we did see it. I mean we tracked it coming

in over Alaska, um and then through Canada. I feel like there's ample places to have shot it down with a seven mile radius. But of course you don't want to lose the gear, right. The key is we want to get to that gear and find out what it is, who made it, what they're doing, right, And that was the other the other thing, you know. I mean, it's really easy to say I'll just shoot the team down, but I don't know would you want to be the one to make that call and be responsible for what

it might hit. And then, of course, aside from that, let's say you really were in desolate place if it just smashed the smithereens and you lose the ability to find out. But by the way, do you think, um, this caught our attention or or scared us or freaked us out because just because we can see it. Since we all know that the Chinese have satellites UM with super zooms on them, right, they can already see everything that we're doing with this satellite. They don't need a

balloon necessarily. It's actually like a step back in terms of technology. So why do we care so much? Yeah, it's a really good question. That's something that I asked Rods about too. And in fact, these balloons, despite all the satellite technology, have other kinds of capabilities, are able to reason, detect and measure different sort of things that satellites, which way up in space can't do. And so it's not just China, but the US and a lot of

other countries are investing more in these balloon programs. And this balloon was the one that you know got Carrent. We all saw it. But uh, it seems that there's been any number of these balloons fly around in the US. Flies them too, that go that do sort of go unnoticed because they're smaller, they flied beneath radar and they wind up not being detected. But what about the ones I mean, and now there's I believe reports of another one I want to say, Latin America of the Olivia.

I want to say, I mean, what is the international response to this? Right now? It's really cast sort of a light end because you're right, Uh, China in particular has used these balloons for various reasons, Uh, in many

different countries, you know, crossing space. And I have a feeling that we're going to start to see more of an international discussion about this violate you know, national international borders and sovereignty into what it Maybe we haven't before, just because it only takes one thing to call attention to it, to bring something that it may be, you know, simmering under the surface into the light. Yeah, if it's under the Carmen line, that it is our airspace, right,

and this was well under the Carmen line. Um. Uh, you talk about our balloons and are spying, and we're so mad right now about the fact that the Chinese are spying on us? Do we spy on them too? I'm asking, well, I mean you sarcastically to assume, of course, you know, right exactly, I mean, of course we do. Yeah, and so it really is kind of when you don't

see if you don't really think about it. But this seemed either really bad sort of mess up where this thing, for one reason or another, was where they didn't want it to be, or it would appear to be pretty brazen because something that big, you would think they wouldn't believe would go on. Detective What about the now that it is shot down, it's underwater now, isn't it across off the coast of South apparently not very deep? But still doesn't it Yeah, this is another thing we talked about,

which is, you know they want that stuff. There's a question of the water destroyed to have any sort of self destruct mechanisms so that it would be destroyed before anyone could get to it. And they just don't know. They're going to get this thing and haul it out. And I don't know that we're going to be finding out exactly what was done anytime soon, because you could imagine that they're going to keep secret a lot of

the stuff that they find. So of course we'll be reporting, try and find out everything we can to tell our listeners, viewers, readers, all the way that we try to tell people what's happening in the world. All right, I hope when we build our balloons we do include a self destruct mechanism. It seems like a no brainer, right, I mean sure, yeah. In any case, we can learn lessons from the Chinese West. Thanks so much for joining us. West Gasova their host

of the Bloomberg Big Take podcast. They're focused on, um, the alleged spy balloon, and of course now we know it's been shot down by an F twenty two raptor, which is pretty cool in itself. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller seventy three, and I'm fall Sweeney. I'm on Twitter at pt Sweeney.

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