The Fed, Retail Sales, and The Great Resignation

Fed minutes. So does our next guest, Danielle di Martino, Booth CEO and chief strategist for Quill Intelligence, former advisor at the Federal Reserve Bank of Dallas. Danielle, what are you really looking for this afternoon when we get a look at those FED minutes? Well, I'm going to be looking for the tassett and I use that word carefully.

The tasset concession made to the bears made to Christopher Waller, the former research director of Jim Bullard at the St. Louis Fed, who's now our gut Ner, uh and Master and George and others who have been insistent that the Fed Reserve does not belong in the business of of housing of the word we would use internally when I was at the fit with credit allocation. Um. So it's an inappropriate place where it had to be, and it

has been for about a year. And the only nod that we saw to them in the minutes was that they you know, they said specifically, we're going to get out of a housing business. We're gonna get out of the business of mortgage backed securities and focus more on treasuries. So I'm interested in that conversation and how that went down because I think it's what prevented a dissent. Yeah.

A lot of people, though, are getting downright angry that they're waiting this long to make those statements and that they're waiting until the March meeting to make any moves. Inflation is at a level where you know, I'm getting I'm getting text messages from from viewers who finally figured out my cell phone number, and there are a lot of expletives in them. Um, what do you think about the possibility of an emergency meeting or a fifty basis

point hike in March? You know, when when I saw and I was I was actually I was gratified that Jim Bullard stood by his position on Monday morning, and because it at least seems to me that there are at least a few people inside the FED who are not insensitive. And that's the word that I'll use. So it's all good and well to come out with an emergency rate cut in March of uh, you know, when investors are being you know, in the crosshairs. But it's not okay to come out with an emergency rate hike

to answer the plight of everyday US workers. And that's to me, it boils down to being white and black. It's as simple as that we will come to the rescue of investors, we will not come to the rescue

of you as households. And the FED is mandated to make policy in the public interests and to suggest that when when when we're when when we've got the gallows humor going on about skateboarding and relearning how to do that and gas prices are you know, hitting four dollars a gallon, and it's it's just again, the word that comes to mind is insensitive. Five dollars a gallon. We were talking about five dollars. Yeah, So that Daniel I mean, when we think about inflation in the FED, I'm not

even sure the FEDS in that business. This an inflation this time around primarily supply chain driven. So was this don't a good point? Maybe it's something that the FED can't address. How do you think about that? You know, I don't think it's supply chain driven. We we saw production this morning increased by point two p once you got rid of the cost for heating oil and gas. So I don't buy that. I think that the supply

chain disruptions are coming undone. We're seeing inventories be replenished. Uh, and that the you know, on the other hand, forty two million Americans got a bump up in their allocation for food spending on October the one. And that's why, despite world food inflation being off the rails, it's even more off the rails for your average American family because the US government has put pump so much fiscal spending

out into the economy. So we we have to look in the eye the fact that the fiscal spending, and there's been countless empirical studies done on this. When you give people money directly deposit cash into the hands of those with the highest propensity to spend it. They're going to spend it, and they did. And the inflation is lagging, so it's dragging down growth even as the fiscal stimulus has largely gone away. Can I just ask you quickly about Sarah bloom Raskin, what's your take on um, the

kind of job she'll do if she's ever confirmed? Well? And I think it's I really do think it's a

big if. People don't quite understand the importance of Pat to me sticking to his guns and saying I'm i'm self imposing term limits, and so time and again he's been able to actually do his job, and and and and put, you know, give the scrutiny that's needed to certain positions, whether it was defends municipal bond facility that he insisted be shut down along with those credit facilities in the December two thousand m two at twenty excuse me,

two thousand twenty stimulus. I think that there has been an inappropriate amount of um of disclosure, and I think demanding questions as opposed to being placated with saying I'll sign a pledged it's never exists and dreamed up by Elizbeth Warren, No, I think an appropriate of scrutiny is called for, and I find some of the testimonies plural that have been that have been given to be disingenuous because of the work that they've been in the past

on climate change. Danielle, thank you so much for joining us. As always, we appreciate your thoughts and insight. Danielle di Martino, Booth, CEO and chief strategists at Quill Intelligence. Speaking of inflation, for you, no matter where the where you look, you see it c p I, p p I retail sales. Uh, certainly many signs of inflat sation out there, whether it's at the gas pump or the supermarket. The question is, um, have we peaked? Has it peaked? When will we see

inflation a subside? And there's a federal reserve in other center banks have any roll here? Let's check in with Jennifer Lee, senior economist and managing director Demo Capital Markets. So, Jennifer, I'd love to get your call here on kind of us inflation. Have we peaked? Are we near a peak? How do you think about it? Good morning. I'm going to continue saying that we have not piked just yet.

We are actually expecting uh, the inflation data to sort of you know peak the rollover I'm going to say, like late spring ish. Um, I don't think it's going to head sells very quickly. Unfortunately, it probably stays somewhat elevated before heading a before cooling somewhat in the second half of the year. But so NOA in a in my long winded way of saying, I don't think we've peaked just yet, but we're calling almost there. But you do think that we're going to come back down? Um?

Is that because you think the FED is going to hike rates and that's going to cool down the economy and inflation. That would be the hope. I mean that's you know, I think of being central banks around the world of your just pointing out, are facing the same issues right now. And given such high inflation rates globally, you know, all the central banks, including the FED, are you know, starting to rate in all that accommodation that

they've poured out during during the pandemic. Um, And this is the time and with inflation before inflation gets too much out of control. So, Jennifer, I'm looking at the w I rp go function on the Bloomberg Turmulin shows me potential for seven rate hikes encounter. Is that something you ascribed to? Oh, that's pretty rising. I feel every every single week we are actually we are looking for five rate hikes this year, twenty five basis points each

and kicking off in March. I think that's more, you know, I've been saying a more reasonable pace. UM, I think fifty basis points for example in March that summer calling for is h I think it would be quite aggressive UM. And I think it was only like one UM, one FED member in particular, that it has been pushing for that. But I think the other policymakers have been taken more of a balanced approach and looking for probably basis points instead.

One of the concerns, I mean, we all know what rate hike cycles look like, or even the kids can go back and and look at the history. But one sort of unknown is how quantitative tightening will affect markets. How do you see that panning out? Will they just um let it run off the balance sheet? Will they actively sell assets? Is it going to be a problem for rates markets? So we are looking for the QT process to start probably in July um and and and

sort of taper off at a steady pace. But the Fed has always said that they are going to focus more on the FED funds target specific because that is what the public knows and and how you know, whether or not balance sheets runoff is is going to impact anyone's mindset is a big question. But I think they're going to just basically use the set funds and talk and keep talking about raising rates and sort of in the background, let let the balance sheets sort of start

coming off. Um. And I think that will also have the impact of, you know, of a of a tighter, tighter financial conditions. Besides, Jeffrey hikes Jennifer. At two pm Wall Street time, we're going to get the f O m C meeting minutes. Um. It's always big news here Bloomberg. What are you looking for when when you Peruzo's minutes.

There's always a lot to go through, but it's always interesting to get like a little little little tibbits, like you know, how how much each policy maker was pushing for what you know, how many um where there are several a few, you know a majority of people that were pushing for you know, a more aggressive tact at the beginning of a of a great high cycle or

are they trying to go more severely. Those are little nuances, I think, just to see, you know, where how they're going to start off, even though they were saying that they're going to start raising rates right now, and even though, as you're pointing out, we've got seven rate hyps potentially coming in, which again I think is a bit extreme. Um. You know, things can change, and once inflation starts to taper off, they could start reading in a little bit

some of their um their hawkish talk. Um, you know, I don't think it's going to be I don't think they're on autopilot as things what I'm trying to say, and I take most central banks are probably in that mode right now. Um not all right. We see some interesting exceptions in the Bank of Japan springs to mind. We had an interesting opinion piece this morning on Bloomberg saying, you know, the economy, the growth or the recovery in

Japan doesn't look great. But as we all the rest of us deal with this huge inflation, um, the rest of the world might look to Japan and think one percent doesn't look so bad. Right now? What's your take on the contrasts of the Japan with with the rest of the central bank regime Japan has been. It's such an interesting story there, and I mean they've been facing you know, deflational on your more or less for the

last at least two decades or so. UM and that is one UMU central Bank, as you just pointed out, that is remaining stubbornly on on the signlines, and Governor

Karuda continues to stress that point. Um. You know, they had bond yields, for example, rising, their ten year yields were rising in conjunction with everybody else's uh last week and earlier this week, and they had to pour some money into to bring it back down to what their target was, but they remained so devilish and even one one or two of the the policy makers within the bank um continue actually to push for even more accommodations.

So that's a huge extreme from what we're seeing elsewhere, you know, with with the G seven, even the ECB right now, you know, they're starting to become less emboldened to their transitory story and we're probably going to see you know, it's still a matter of debate right now. But you know, I wouldn't be surprised to see right high before the end of the year. All Right, thanks so much for joining us. Real pleasure talking. Um. We obviously are following this story very closely. Um, and and

we'll continue to Jennifer Lee. They're joining us from BEMO Capital Markets, where she is senior economist and managing director. I'm gonna talk electric vehicles. Yes, I want to talk internal combustion vehicles, but it's the same discussion, the same discussion.

Connercend a columnist for Bloomberg Opinion, joins this. Connor, You've got a piece out here saying, the automakers have an incentive obviously for keeping new car prices high, use car prices high, because they need the profits to fund this whole pivot towards electric What what's going on there? You're basically saying their purposely holding back production to pad margins.

They say that they're kind of in a spot that they don't mind where you know, again, they have to inve us billions of dollars in the CP transition, and they also have to show investors near term profitability. They're trying to do both, and so they see the prices are really high. Inventories are really low. They're saying that their production won't meaningfully impact prices, and make expect prices to remain high because that's going to fund the profits

that keep keeps this thing going. So in a way, your column actually made me feel better about being um an old you know, dodgy e v holdout Because I am waiting for General Motors to release a new Sierra, the A T four X. I need the six point to leader who naturally aspirated V eight And I felt guilty about that until I read your column column Connor, because um, what I realized is I'm paying a high price for that big inch internal combustion engine, and I

am effectually subsidizing their electric vehicle investment with that. That's a really good way. I've never thought of it that way. That's a good point. So now anyone who really wants their gas guggler can say, hey, look I'm paying jury. So it's you know, there's no way that we'd be building these things unless people like me were going out and doing our patriarchy duty keeping the old stuff going. Connor. But if if the automakers had the chips, wouldn't they

crank up production? Back up to sixteen seventeen million star. Yeah, this is my main question was is selling fewer vehicles at higher prices more profitable than selling um more vehicles at lower prices? Right, and I get to the whole discussion about you know, what does demand for gasoling power vehicles look like in four We know that right now we've got a huge shortage, and if you just pump out vehicles for six months, they're all going to sell

at high prices. But you know, it's an industry with a lot of it's capital in sensive, it's a long lead time, and if ebs ramp up, you know it's coming out of somewhere. And so it's kind of a tricky situation, kind of like oil oil product producers where they kind of need to keep supply low because they're really worried about a glut on the market as demand

falls off over time. A buddy of mine runs a bunch of dealerships, and he used to say, you'd have, you know, a couple hundred vehicles in inventory, but he's as those days are over, that's on how they're going to run the dealerships going forward. Is this kind of a new normal where they're gonna have lower inventories, maybe

lower production. I'm not sure how that works. Yeah, it's interesting because we're seeing the same thing in the housing market where homebuilders are very happy with kind of the lowmentory, high profit margin situation. That's sort of like, well, we got caught on two of thementory, but we're making it up on price and margins. So they're they're kind of rolling with it for now, and investors are sort of not sure, Like, you know, valuations are lower because they're

not sure if Martin's are gonna Mian revert. But that's you know, what they're selling in terms of a good thing for investors. Right now, my wife is looking for BMW X five X drive forty five E, which is their new hybrid STUV. I messaged my inside guy at BMW and said, do you have an inside guy a BMW?

I said, can you source one of the one of these for me at a dealership in the States, And he said, we have one in California, there's one in Sans for it actually called out a deal or is that we're selling at inflated prices above m s r P and they so that those dealers an't going to

get them until I're going forward. So I hope they're I hope they're true to their word because if you look for UM, for example, a four D F one fifty raptor uh there you know, Baja racing truck, or if you look for the Mustang Shelby Mustang g T five hundred, which is the supercharge five point two seven hundred sixty horsepower monster, you can't find them without ten thousand, fifteen thousand, twenty thousand dollar additions to the price tag.

They call it like UM added dealer something, UM profit margin. Yeah, it's it's unbelievable. I always wonder like, if they're doing that, why can't UM these producers have their own dealerships, right, And that's probably the whole point with the online sales and the big fight about that. So it's that's probably gonna be a contentious flight going forward as dealers want. You know, if Tesla and Ribbyan can sell online, then why can't Board and GM. You make a great point

about Tesla in your column as well. Um Elon Musk basically said, yeah, we're not working on the cheap car for every man right now because we're making too much money with the expensive cars for rich people. Um, what,

what's you know? There's got to be some outcry there at least I'm not that not that the Model three is that expensive, but they are making huge margins on all their products, right And I think right now, because some conductors are in short supply, they can credibly say, you know, sorry, this is really just a situation we're

put upon, we're put in. But if some semi conductor towards normalized, then maybe there won't be those excuses and they'll be more legitimate outcry and crack down on, you know, when wind fall profits or whatever you wanna call it. So, what is the new normal level of vehicle sales in the U S? If it's not a production, if it's not sixteen seventeen million, I mean, what's that? You're always

asking me what the stars for this? Yeah? And I think the I that's where demand is, right, I mean, if I'm a factory, I think I think over time that's where we're gonna be. But it's sort of evs are supplied constrained for the time being, and automakers are very cautious about letting the market with ice vehicles because they don't know what the man looks like down the road. Connor, just personally, have you spent any uh time seat time in an electric vehicle? What do you think about them?

I have to which it's sort of embarrassing that I write about him, but I have not been behind the wheel of one. I'm on the list, dribbian, but I have not driven one yet. I have to say so many I find um interesting. I was super psyched about these uh um F one fifty lightning trucks coming up the waitlist put me off. Now I've tested out the Mustang Maki, which is fast and sporty, but it doesn't vibrate. It doesn't there's no feeling in it. That's I don't

enjoy driving it. I keep asking you car people, isn't that gonna be a big turn off for these things for evs? I just I just think the folks that like the internal combustion engine, particularly if you go to the high end, you know, performance cars, I think that's gonna be a problem. But what do I know? So but everybody's tell me where you can't shift your own gears? I know, don't even go no more manual, Connor. I mean, let's not go there. I kind of send calmness for

Boomberg and joining us. He's a founder of Peachtree Creek Investments. He's a Bloomberke opinion columnist. Uh, we're all going electric, folks, get used to it. I guess I'm keeping my two thousand four team BMW five series six speed manual transmission for as long as I possibly ken because it's a lot of fun. One of the many things that I don't understand about this pandemic, any economic disruption resulting from it, is this whole thing about the great resignation, these three

four five million workers. Who are they? Where did they go? How do they do it? And I really don't how did they get how did they get so lucky? I'm thinking about Dave Wilson, Bloomberg's former Stocks editor. Um, I blame him. I put him in that bunch. But he worked here for thirty years. If you work someplace for thirty years plus, you're incredibly smart. Uh, you save well, you invest well, you should retire. Okay, alright, alright, I just said, Dave, are you going? Buddy? Michael Hanson, he's

a CEO of Send Gauge Group. Michael, who are these people. Where did they go? Are they coming back to the workforce? Yeah, thanks for having me. And actually the example that you said, the retiring um the people are the minority of these people, the last majority of those people that are resigning actually reassessing their career. They're saying, what don't I like about my current job and what where do I want to

go next? And about of them feel that their current job is not really supporting their career and is not supporting them. Yeah, that's why I say, you know, he should be retiring. If you if you have a thirty year career and you do very well and retire, that's no, that's no surprise. The great resignation is weird in that people who you wonder how do they have enough money to to quit their jobs are doing it. And one of the points that you make, Michael, is that they're

actually making financial sacrifices. They're not retiring to Indian hills in playing eighteen holes a day. They're they're doing other stuff exactly. And this is why this is actually good news in a way. These people are courageous, They take risks, and what they say is I want to learn another skill and I want to get a better job that

gives me more satisfaction and better pay. And that is something that actually should give us, you know, great confidence in the future and great uh conviction in the American labor labor force. In a way, Michael, they're shaking up the job market as well. You know that the courage of those people, which is what I hear you saying, is forcing employers to do better in terms of the wages they offer, in terms of working conditions, in terms

of dealing with you know, the working class. Absolutely, And the only thing I would add other than what you said is the employers should think about also about how they reskill and upskill their workforce. How what can they do to give them education and training and give them opportunities while they're working to get better skills to get a better job and better pay. They don't have to wait until they resign. They can do it when they're actually employees. Michael, Uh, Matt and I have to come

into the office every day. I don't we don't have an option per se. But it seems like we are very much the outliers in this new world order. Are you in the camp that says we are now in a permanent, hybrid type of environment. I'm in the camp off. First of all, let's not stipulate what the future is going to hold. We gotta get open, and we gotta learn, and we've gotta learn what works and what doesn't work.

And I am, however, a believer that we're not going to go back to the old world that everybody has to show up in the office at you know, nine am on Monday morning. That's not where we're gonna go. Where we're gonna end up, it's going to be a hybrid model. But how we're going to mix it, how we have technology influenced this, I think is open and what I would recommend to other CEOs that are you know,

we are a foreign a thousand people company. We're experimenting a lot, and we're learning from each other and keep that open mindset. Yeah, I mean, I would point out that it would be technologically possible for me to do this job for a moment, I wouldn't want to um because we pick up so much from our colleagues here. We discuss stories, I uh, you know, in the midst of breaking news. Are we going to be able to do that online eventually? Michael, what do you think about

the possibility of working in the metaverse. I don't think we've got to in the foreseeable future. I don't think we're going to be doing this online. I think we've got to find the right blend, in the right mix. And you use some great examples when you bump into colleagues, you share stories and think about somebody just joining a company.

You've never worked for this company, and how do you get you know, a sense of what the culture is like if you don't have a cup of coffee with people, or share a meal, or you know, bump into the met the water cooler. So I do think hybrid that that finding the right mix or face to face and online is going to be the way for the future. Hey, Michael, thanks so much for joining us there. Michael Hansen, CEO of Send Gauge Group, talking about the Great Resignation. 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 three. Pt on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch US worldwide at Bloomberg Radio,