Markets, Cybersecurity, And The Supply Chain

year consensus is eight point four UM. I don't think wages are going up eight point four percent, so that's a challenge for many folks out there. Let's check in with Robert Rosener, executive director, senior US economist at Morgan Stanley. Robert, what are you can? Award winning economists? Award winning economist, aren't they all? No, that's the point. He won the n A B Outlook Award for the most accurate economic forecasts over the past four quarters. So who yeah, So

he knows what he's talking about. So you we're gonna ask about inflation. This sperfect. Let's do it. Robert, thanks so much for joining us. Really appreciate you taking the time here. What are you going to be looking for tomorrow, Robert, and that inflation data. Yeah, well, thanks guys, thanks for having me on and you're two nice um. But when it comes to the inflation data tomorrow, we're certainly going

to see a lot of heat. Um. We're looking for a high headline inflation reading driven by the upside and energy prices as well as food prices, and underneath the surface, the core should remain elevated as well. We're seeing a little bit of give back in terms of goods inflation. Some of the areas that we're leading the high inflation prints that we saw last year, areas like used car prices,

appear that they've pulled back a little bit. But on the surfaces side of the picture, where we've seen that broadening out of inflationary pressures in recent months, we actually look for some acceleration there in things like rents owner's equivalent rents as well as some of the COVID sensitive categories like air fairs and hotels all look like they're

set up for high readings. And all of that's important as we think about how to read this print, because we know the top line is going to be high driven by energy prices. The internals are going to tell us a lot more about where inflation is likely to trend over the month ahead and if we are going to see any sequential deceleration. So um, but where do you think now it's likely a trend over there. You know a lot of people are saying it's going to

peak with this reading. Our Abigail Doolittle, who is a chartist, disagrees. What's your view? Well, that's the key question. You know, on a twelve month basis, we do expect that inflation is going to peak. We're expecting that this peak reading for headline CPI is going to come in at eight point six percent, so again that multidecade high, and as we make the lap around those tough base effects from the spring, we should see inflation coming off of those peaks.

I think the key question here is what's going on with those core internals and how quickly are we going to roll off of those peaks and to where our forecast would say, yes, we're going to come off of those peaks. It's going to be a slow grind off of that peak for inflation, though year over year inflation is going to remain elevated. It's likely in our forecast to remain above seven per cent until we get into the second half of the year, so those pressures are

still going to be there. Um, what we need to see is if the core is going to start decelerating a material way that can give us more confidence that we will see inflation slow further or more materially when we're getting into the end of next year early sorry, end of this year, early next year. But that evans is not there yet, and what we're seeing is that a trend is warming that suggests them for their support.

All right, So, Robert, given that inflationary backdrop, give us your assessment of kind of where the FED is right now in terms of their actions and kind of how you think that might play off for the remainder of the year. Yeah. Well, this is clearly a FED that is taking inflation much more seriously and has undergone a very hawkers shift in recent months as a result, and we're expecting the Fed to deliver on more hawk is expectations. We're expecting a fifty basis point rate hike from the

Fed at them May meeting. We're expecting another fifty basis point rate hike at the June meeting. All the while policymakers have given us an indication that the balance sheet runoff is likely to begin. We think that announcement comes in May. We just learned in the minutes last week that will likely occur at a pace of a billion dollars per month. So that's a lot of policy tightening

coming in the pipeline. And there are a number of important things that we learned in the FMC minutes last week, particularly around policymakers preferences for tightening policy expeditiously more our favoring fifty basis point rate hikes, and coming back to the inflation data, that's going to be the key guide. We do think it will get to in May and June.

What does the policy path look like thereafter? It remains data dependent, and so if inflation does not pull back materially, we should expect the Fed to continue to pursue a more hawkish policies down all right, So back to back fifty basis point hikes. And for those wondering, there's no April meeting for the Fed. They skip it maybe because of Easter, I don't know, but their next meeting is May.

F earth Um Robert talked to me about, you know, Paul said, isn't everyone but no, Um, Wall Street is one example of a place where everyone doesn't get a trophy. There's one winner. You are in participation, UM, So talk to us about your process. You know what, what do you think is different about your process that allows you to forecast more accurately. Well, I think it's been continuously the case as we moved through UH this recovery and as we're moving for this expansion. We really have to

get into the leads. There's a lot of specific drivers moving at the sector level. So for Morgan Stanley research about the collaborative process, we get to hear very smart things from analysts who are experts in the oil sector who know what's going on with cathex, same thing with the auto sector and so on. So that collaboration really plays a big role in the forecasting process. And then also you know, keeping a very close eye on the models. UH,

there have been a lot of surprises. That is clearly what Kapta fed by surprise coming into this year is the models would have predicted transitory inflation. We have to be constantly questioning what the models are saying and understanding what the output means in the context of a very fast moving economic backdrop. So this is a real interesting point for me. Robert, is Morgan Stanley back in your office. Now we are back in the office, and you know,

talk about collaboration. Nothing like seeing people face to face feels really good. That's interesting. So yeah, it's intertionally a lot of different companies trying to come to grip soths. I always like that, let me get somebody on and see, hey, are you guys actually in the office. Are you working remotely? And Matt and I are here in your office. Yeah, but Robert won the trophy when people were home. The only trophy HEAT cares about his Institutional Investor magazine. That

is the one that South Side really cares about. Not as much as in the old days, but still I think it's pretty important. Robert Rosener, executive Director, Senior us E commers from Morgan Stanley, working from the office, expecting fifty basis points rise from Federal Reserve over the next two meetings. Tracy mcmillians she's had of a global asset allocation strategy Wells Fargo and co graduate of William and Mary Rick. Down the road from my University of Richmond,

UH Spider's nice little rivalry going there. Tracy, We're gonna have some CPI data tomorrow. It's going to be an ugly read. What's your inflation call? Yeah, so we're definitely seeing a perfect storm of inflationary pressures, and you know, we do think we're going to see an AID handle on this CPI headline number tomorrow. So as you said, the numbers are going to be ugly this week. We've got CPI, we've got PPI coming out. But inflation we

think is probably near its high for the cycle. Our commodities analysts always says that the cure for high prices as high prices, and you know, we don't see things like oil spiking higher at this point, but trading in a really broad range with some potential upside as we go into the end of the year, and you know, other commodities probably choppy too, so they really impact headline inflation um. But we're also seeing you know, at this point shut downs in China and by shortages from that

and all of that we think keeps inflation elevated. But again, you know, here in the eight um we're probably towards the top for this cycle. How difficult is it to factor in geopolitical risk and issues when you're looking at these markets, Tracy, because of course, you know, last year this time, you wouldn't have known that we're going to have this sort of extra crimp in the supply chain, extra boost to inflation of Russia invading Ukraine, and for all we know, you know, next year we could be

looking at a bigger problem around China. Yeah, absolutely, And you know it's it's really um, these unexpected events that happened to market that cause the kind of uh, you know, volatility that we tend to see uh in market cycles. And you know, this time around, um, we not only

had COVID kind of ending and instella. Instead of you know, celebrating the reopening from COVID, now we are lamenting a war in Europe and looking at the market impacts of that conflict because exports from Russia and Ukraine have caused additional supply shocks in addition to the ones that we were already seeing. So we had to you know, increase our inflation expectation, we had to pull back on our growth numbers, and you know, unfortunately commodities don't really clear quickly.

And this war is you know adding additional supply talks, shocks to commodities, so they all ramp nail to inflation. UM has been lengthened, and the Federal Reserve is ramping up its policy response. So all of that is something that markets have had to recalibrate really and just the last three months. So do you expect tracy that this Fed Reserve will raise interestrates fifty basis points maybe over the next two meetings. Do you think they'll be that aggressive? Yeah,

we do. We think they're preparing markets for a really tough inflation fight. And they told us that they're going to do what it takes UM to you know, quell inflation, and their frontloading these hikes. So we do think that means probably fifty basis points in May, probably another fifty basis points in June. And they're also going to be implementing quantitative typening. That's another tool in their tool kit. They're they're using UM and they're bringing that to the

four very quickly as well. UM. So a job of orchestrating a soft landing is going to be really tough. We've only utilized quantitative tightening once before, and it was to a much lesser degree. And it ended shortly after it started. So you know, the set is now using both rate increases and quantitative tightening to get inflation under control, and we think that's going to be a headwind market.

So where do you hide? Yeah, yeah, yeah, it's so really investors are are asking that question, and you know, looking across different outset classes, we're seeing a fairly steady move out of equities, but not a run for the adfits. And we're not suggesting running for the exits and equities, um. We are suggesting moving back towards neutral strategic allocations. So that means holding some equities but not being over risked.

It means being diversified inequities and moving away from higher beta equities like emerging markets and small caps and adding to UH fixed income from maybe you know, the higher beta equities. And for there we would say, look at the intermediate part of the curve. With ten years at two point seven percent, that's starting to look more attractive, certainly more so than we've seen in a couple of years. All Right, Tracy, great stuff, as always, Tracy McMillian, head

of Global asset Allocation Strategy for Wells Fargo. I think Tracy's based in Winston Salem, the home of wake Forest University. UM, part of all those great colleges down in the great state of North Carolina. So we have U n C. We have a little place called Duke, NC State, you got Wake Forest, you got basically the Atlantic Coast Conference, basically all located within an hour of each other. But you've got to go to the Midwest to find a

basketball champion. Will please? All right, Let's bring in a professional here because we want to talk cyber security here. Bob Kulaski, Senior VP for Exeter. Bob, we have a hot war in Ukraine. I think about cyber aspects to that. What have you noticed in terms of maybe some of the activity over there and what risk it may pose to some Western countries? Sure? Great to be with you, UM, I mean I think the first thing I would take away is cyber that fully integrated into a war plan here.

And for Russia, UM, we've seen their attacks not be cyber specifics as much as cyber being part of their

overall campaign too. You know, you legitimately go after Ukraine and the Ukrainian people, and so that means their attacks have been somewhat strategic just going after communications infrastructure, um which is intentional to hurt the Ukrainian military commander control things like that, as well as things against the electric gride in the financial sector, which just cause more inconvenient for you know, the people, and you know, to help

the Russians achieve their war rings. And then you throw that in with some disinformation and using cyber to get access to credentials for Ukrainian military leaders, people involved in creating military and um post i legitimate things on social media sites. So it's an attack on credential spear fishy to then get access to so confusion. So you know, unfortunately the cyber's part of an overall hybrid effort the Russian government. But Bob, what can we do in terms

of retaliatory attacks? Does the US engage in that sort of um, I guess warfare? Do we engage in cyber warfare? Will we hit back that way? So, I mean, when you put in the contents of warfare, you know, we're still largely following our own strategic participation in conflicts, so you're not going to see US actively attacking. It's committing an offensive cyber operations that would be thought of as warfare.

But do we have a setup like that we have ability to cause harm in Russia and particularly to cause harm and introduce friction into the operation to cyber operational system of parts of the Russian government. And uh, you know, obviously the administration is somewhat the circumspect of when that's used. You know that that authority has been given to the Secretary Defense and been been to cyber calm to go

offensive if it's part of our overall strategic efforts. So who Bob, who who kind of runs our cyber I guess security issues from a military perspective is that part of the Department of Defense is at the n s A. Where does it really lie that responsibility? So, you know, the administration under the Trump administration gave authorities to the Secretary of Defense, which in the operational command is the cyber Command, which is a link with the National Security Agency.

And actually the White House right now is undertaking a policy review about you know, what authorities should lie with the Secretary of Defense and where the where the White House its health the National Security Council should be um involved in making off at the cyber decisions. And you know that's the question that the show she's going to be looking at is Yeah, are you giving too many authorities to the commission closer to the command and you

know that a personal argument that happens in military operations. Interesting. Interesting, all right, Bob Colaski, thanks so much for joining us. Bob Carloski, Senior VP for Exeter. I'm talking about cybersecurity in a time of you know, a hot war in your has to raise um, you know, the awareness presumably of Western countries. All right, let's talk about supply chains. I'm gonna talk about supply chains as it relates to food. We're definitely seeing issues there that includes the in the

seafood business. Our next guest is doing something about it, Sylvia Wolf exactly of director, president and CEO of Aqua Bounty Technologies. It's kind of like a it's a public trade of stock on and now that kind of a biotechnology company. So if you thanks so much for joining us here. What if you could just start us off by just describing what Aqua Bounties is and kind of what what what what your strategy is? Thanks for having me absolutely. Aquabunty Technologies has two facets to our business.

The first is we are the first genetically engineered animal that was approved for food use, and it's our genetically engineered salmon. And so the two components to our business are the fact that we actually farm in a land based, recirculating aquaculture system, which means we are under roof bio secure. And then the other part of our business that we think is unique is the fact that we have a

significant expertise in biotechnology. And what I mean by that is selective breeding, gene editing, genetic engineering, as well as thinking about fish health and nutrition. So that's what we do. So I was about to say I love salmon, but then I realized that everyone loves I don't love salmon. I'm really yeah, no salmon here. I see, I'm not. I'm not even a fish guy, but I love salmon. And I always wonder about, um, you know, should I

buy the farm stuff? Should I go? I feel like I'm splurging if I go for a freshwater uh salmon um? Is it as good? Sylvia? I know you're biased, but I'm gonna go and eat your product, and then I'm gonna come back and give my verdict. Is it does it taste as good as the wild stuff? It tastes. It depends on what how you define good. And what I mean by that is we have a slightly milder flavor than a wild caught salmon, which is what you're describing. But the majority of the salmon that we eat in

this country is quite frankly um farms. You know of the salmon that's available in the US as farm salmon, and it's all imported until we build farm is like the one that we're currently operating in Indiana are constructing in Ohio. Your choices are imports, and so wild cod is seasonal. You know, there are quotas involved, but it's it does taste slightly different than a farm variety. I mean, I think I probably, now that I think about it, I tend to eat farmed salmon from Scotland. Farmed in

in Scotland. If I'm Glenlocks, I think is what it's called. But I would much prefer to eat a salmon from the Great State of Ohio. Everything tastes better when it comes from Ohio. What do you feed them? Do you

feed them corn? We feed them a very strict diet that's been constructed for their life stage, and we buy our feet, our salmon feed from the largest feed producers in the world, and they feed all farm salmon, but they've constructed a feed that is specific to the environment where we raise our salmon, which is under as I said, and there's a big tank farm um. And so you know salmon are curnivorous, so there's fish meal, fish oil, and a lot of protein which typically comes from soy

in their feed formulation. So we've seen inflation, uh, Sylvia all over this economy. How has it affected your business? You know it's affected us because obviously feed prices are rising. Um, we've all seen what happened with agricultural commodities, soy being no different than any other agricultural commodity. So we've seen

increases in feed pricing. But the I think one of the benefits of the way that we farm is we are not subject to a lot of the variability that say netpen farmers are subject to because we farm near consumption. So we don't have the inflation with air freight. So you're salmon, for example, from salmon is air freighted into the country, and we know that there's now limited capacity, fuel prices are increasing, etcetera. So UM, the way that we farm allows us to control those costs and actually

produce close to consumption. So where we've seen inflation is primarily in feed. UM we're talking to Sylvia Wolf, I'll just bring anyone up to speed. Is just tuning in from Aqua Bounty technologies. They have genetically engineered salmon that they're going to be growing in Ohio and some other state. UM and you have tremendous experience in this UM industry. You've been at Sarah Lee and Pillsbury, You've been at UM Tyson Foods and a number of for example, the

National Fisheries Institute where you're UH committee member. UM is this is Aqua Bounty like a big E. S G move. Are you doing kind of the right thing for the climate for the world at Aqua Bounty? We believe so, and and we think about it from two perspectives. Salmon is a very healthy, nutritious protein and providing that and to a road are part of our population and actually looking to feed the world globally, We're gonna need new

protein sources. So we think that feeding the world is definitely something that we want to do, but we want to do it in a safe, secure, and sustainable way. So if you think about the way we farm, there's two aspects to our fish and the way that we farm. First, we recirculate the water um, so we think that we use you know, we're judicious about our use of a natural resource. And then our fish, the benefit of the

genetic engineering is twofold. The first is that they grow faster than a conventional salm, and so we're able to put more throughput through the farm um with that, so for less resources in the same capital investment. But just as importantly, our fish are actually incredibly efficient in the way that they turn feed into biomass, so they actually require less than a pound of feed to put on a pound of weight. And that's another way of looking

at how we use our natural resources. So we think that we're positioned very well for what's going on around me right now. And I was just thinking of over fishing, which is one of the biggest problems. I was throwing you an alley oop, you know, dunk it, Yes, okay, So we again you know, takes the pressure off the oceans, um net pen farming, you know, there's environmental impact with that.

And then when you think about wild salmon, that's really about quotas and protecting wild coop populations and so land based farming we believe is going to be a significant part of filling the gap for for our healthy, nutritious protein because it's good stuff there so Via Wolf, Executive Director, president CEO of Aqua Bounties Technology. 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, pen on false swheey, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio. M