The Markets And Economy Amid Rising Inflation

the PPI data is has it peaked? Are we close to a peak? Well? Robert Rosener joins US executive director, senior US economist for our good friends over at Morgan Stanley. Robert, what say you? What's your inflation call? Right here? Are we at or near a peek in this inflation? Well, we do think we're near the peak, not just there yet. We still have a couple of months ahead of us where we're likely to see the inflation numbers, particularly year

over year, creeping a little bit higher up. There are signs that that peak is ahead of us in terms

of what we know so far. We saw the consumer Price Index data just yesterday, which showed pretty steady inflationary pressures into the end of the year, but some early signs of cooling in the producer price index, as well as some very early signs of potentially some release in supply chains, suggests that we may still see cooler numbers ahead as we look further into Robert you or the winner or are the winner of the NAB the National

Association for Business Economics Outlook award the most accurate economic forecasts. Yeah, I mean that is big, especially at a time when there's so much divergence and forecasts, um and there's so much uncertainty out there. What do you do? What do you think you do differently than others when you're putting together a forecast. I think the key to forecasting through the pandemic has been to look not just top down, but bottoms up. We have to understand that what's going

on in particular sectors of the economy. We have done erstand what's going on very high frequency with things like consumer behavior and business behavior, what's going on with hiring, and that definitely pertains to inflation as well. You know, inflation has been uh, certainly a macro phenomenon, but there's been micro details that have been driving the numbers that are really important to watch the pulse of what's moving. So we need to know what's going on in the

auto market. We need to be working collaboratively across our research department and more against Stanley to understand what our auto analysts are saying, what our sector analysts are saying. Because individual sectors that might ordinarily have been smaller moving in such large ways, it's really impacting the macro data. I think what you just said is you got to work much harder. Got to work hard. That sounds like

a lot of work, it does. I mean, I'm not sure I'm into that, but but you know, I've competed against Morgan, Stanley and micers A sell side analysts for years and they're always always so good. One analysts leaves. I get someone as good or better Robert. You know, I guess one of the issues is um you As we think about the labor market, it's such an important part of the economy, consumer spending. It ties into so

many things. My question to you is, and I've asked a lot of smart people and I'm trying to get my head around this. The four to five million folks that have left the labor force. Who are they, Where did they go? Are they coming back? Yeah, it's it's probably one of the most important questions for the year ahead, if not for the next couple of years. Is there's still yawning shortfall in jobs relative to pre COVID peaks. And of course that's represented as well in the shortfall

and labor force participation. There's just fewer people in this labor force than there were prior to COVID. Now we know a big chunk of that is because of retirements, which looked like they caught up pretty significantly over the last eighteen months. Those are labor force decisions that are probably going to prove to be stickier, and that, in our estimates, is about two thirds of the shortfall in labor force participation, and that's the element that we might

just not see return. But there's still an element of the shortfall labor force participation that comes from things like disruptions due to COVID, or people just waiting to get back into the labor market, having to deal with childcare issues, all of the disruptions from the pandemic. Now that may be slower to return, but there is still some room there to move the needle in terms of bringing labor fertipation higher. You know what, what it brings up for me, Robert,

is a question about UM. What cynics or critics called the plunge Protection team, because a lot of people the plunge protection team like the the idea that the FED is going to freak out one markets fall and come back and be very supportive. And the reason that I think UM it's an important question now is if you've got these three, four or five million people that decided they could retire early. A part of that was how

well they had done in the markets, right. I mean, we all know people, I think who have done so well in the markets. And of course they saved early and they put money away, and that was mark. But the reason they were able to step away is that we were up twenty seven percent last year. We were up eighteen percent in twenty we were up twenty in

twenty nineteen. And if you see a twenty percent correction, can the FED really continue to fight inflation by staying on the path to rising rates or does it have to capitulate and come in and save UM shareholders that are at risk. Well, that's a really great question, and I think we have to begin from a starting point where the FED is moving towards tightening monetary policy, and one of the reasons that is allowing them to do

so is that financial conditions remain extraordinarily accommodative. And by that I mean movements in markets that we've seen over the last year. The current state of how financial markets are interacting with the economy, it's supportive for growth. So exactly as you described, household wealth is higher, um just the overall state of markets is supportive for the economy. And this is a FED that's looking to dial back the amount of support that it's providing for the economy.

And so it's likely to be a FED that's accepting of some tightening and financial conditions, whether that comes from lower equity valuations, higher rates, stronger dollar, just the general backdrop of financial conditions may need to snug up a little bit in order to get the economy, take some of the steam out of the economy and take some

of the steam out of inflation as well. So I think that may come as a surprise to some people is that the FED might not be there to respond to every hiccup in the market when they are looking to get to a backdrop where financial conditions are at least more neutral in terms of how they're interacting with the economy. All right, Robert, thank you so much for joining us. We really appreciate getting some of your time. I'm sure you're busy these days thinking about where this

economy is going. Robert Rosen, Executive Director. He's a senior US economists with our good friends at Morgan Stanley here in Midtown Manhattan, m Bloomberg Markets. Today is brought to you by Commonwealth, supporting more than two thousand independent financial advisors with the solutions they need to grow a thriving business. Commonwealth Go where you Grow. Visit Commonwealth dot com to

learn more. I wonder what people, the real people out there, Matt, that are you know, putting their daily paychecks giving it to their financial advisors saying, you know, where do I go with my money? Here? I've got in a market where I think we're gonna have rising interest rates throughout this year. What do I do? Well? Fortunately, we have

some smart people to help us think about that. Tammy Hey, good financial advisor for UBS, joins us and Tammy, I'd love to hear what a typical phone call these days, in the early days of two between you and your clients are what are they asking you? Good morning, thank you for having me. UM. It is clear that one of the first conversations that we're talking about out this inflation. UM, you don't have to be on the news cycle. Just go to the grocery store and understand that prices are

higher than they've been. And with the news on earlier this week, inflation at a thirty nine year high, it's

it's on the forefront of most people's mind. I think the thing that doesn't get talked about nearly as much, but is a balancing effect for us is UM the fact that jobless claims at a fifty year below so for us to enter the Barbell temm, that concern I guess I would have as an investor is that, you know, not only do I want to make more than inflation, but UM, I'm looking at out the corner of my eye at the Federal Reserve and if they're getting really

a restive that typically UM has held back growth and uh, it's it's not It's not unusual for stock markets to take a hit when the Fed is in a hiking cycle. So are you worried, um, that your that your clients are going to see returns diminished compared to what they saw last year as the Fed starts to raise rates. Well, I think that we're outside returns for the SMP five hundreds, So we would not suggest that that is it's going

to be the norm. But we do have a very strong consumer, We have wages that are rising, and we have easy capital, even with the Federal Reserve raising rates, and so we think that that's gonna m bode well for both the consumer and corporate earn. So we really believe that we're looking at a twelve precent smp UM in two and maybe even nine. How about Tammy, I'm gonna go, by the way, what's that bad? That's awesome? That would be great. If that would really happen, that

would be awesome. I think you know, Um, a lot of folks would take that, particularly after the last three years where we've had such outsize gains. Doesn't look as good if you take out seven for c p I. No, but I don't think I think we're gonna be seven cp I for very long. But who knows, we'll see Sammy, Tammy, I'd love to get your thoughts here on crypto because we get so many questions about that. And I wonder when one of your good clients calls you up and says, Tammy,

what should I be doing with crypto? Should it be in my portfolio? How do you respond to that? Well, we don't advise on crypto at this point at ubs UM. It's still a big unknown for us. Even the term crypto has many different UM terms associated with it. UM. We do believe that perhaps the there will be a crypto market. We're certainly seeing it UM. I think coin base was UM reported as having gun and started to do alternatives in the crypto bocket UM options. So we

think that it will exist. But it's just too speculative for us to get our owns around right now. I mean, man, you'd be super rich and with all your clients if you had been advising starting ten years ago. Is it something that you're increasingly think thinking about. Is it something that you know UBS financial advisors need to take a course on. Well, I think that we we are watching it very carefully and UM not to be argumentative, but we would have rich people if we got them in

ten years ago. If we got them in twelve months ago, maybe they would have half as much money because it's still be super rich twelve months. Twelve months is pretty good for for bitcoin. I mean right now, um, you'd be looking at a rise over the last twelve months of about well not everybody's uh into this crypto thing like you've been on it since the beginning. All right, Tammy, thank you so much for joining us. Tammy, Hey, good

financial advisor at GUBS giving thoughts on these markets. Let's bring in our next guest please, Isabel Winkles, CFO of Braves. That's a publicly traded company symbol b r z E about five point eight billion dollars in market cap. They are cloud based software company. Isabel, thanks so much for joining us. We're not going to ask any car questions, but we'd love to just start with talk to us about Brays. What do you guys do? Where do you fit into that technology stack? As it could say, yeah,

thank you for having me so. Braise is a leading comprehensive customer engagement platform that powers interactions between consumers and the brands that they love. So with Braves, global brands can power contextually relevant, personalized cross channel campaign marketing campaigns that build lasting, high value relationships between these brands and their consumers. Hang on, I gotta get my millennial dictionary

out here to understand what you're saying. Um. And also, oh, you know what, I only interact with brands that I hate for the most part on social media. Is that does that make me unusual? I usually reach for social media when somebody's really made me angry, typically in airline. That's funny. So you know, the brands that we are that that we service are really across multiple industries. We service brands UH in retail and e commerce, beyond demand space, media,

entertainment and streaming. We're within the financial services sectors. Were

incredibly broad. We service about it dozen different industries globally. Um. And so you know, it's less about the interactions that happen on social media and more about really the first party relationship that is built between yourself as a consumer and the individual brand that actually you want to develop a relationship with, and and you are willing to download that app stage on a mobile side, on a website, and you're actually hoping to to really get as much

out of that brand as possible, and that brand wants to develop that through genuine relationship with you and need to message you in a way that fields relevant, actionable, personal and timely. So what kind of brands do you typically work with at Braise? I mean, I'd love to get a sense of just kind of like your typical client. Yeah. So again, you know, across a doten different industries, both in the US and outside the US. Of our revenue

comes from outside the US. But maybe, um, you know, the best thing is to to sort of give you a customer example. UM, And I'll actually pick one that's kind of outside of the traditional kind of retail set sector, uh, and one that's outside the U S. So a company called Canvas. This is a software as a service company based in Sydney, Australia, and they actually offer online design and publishing platform UM. And their mission is really to empower everyone in the world to basically be able to

design anything and publish their content anywhere. So they came to us and they bought Braise, and what they were really looking to do was just better support this vast design community around the world, and they wanted to be able to produce more targeted and helpful content to these to their various users. So they needed a way to reach millions of users across the globe with this more relevant information tailored to their local interests, and they needed

to do it numerous languages. So as the Solution and Grace poward this, they executed an email campaign that actually increase their overall email distribution but actually managed to increase the overall UH click through rate and engagement rate UH. And they were able to do this in a way that targeted their users with highly relevant content. They were able to do it in multiple languages to be as

relevant and applicable. And what that does is really make the end users feel like Canada is actually paying attention to what it is they want, what it is they need UH. And it helps to build that trust and that ongoing relationship and turns a casual user into potentially much more of an evangelist, which is really what the brands are looking to do over the long term. Yeah. Absolutely, it seems like it would take a lot of personnel. What kind of growth, UM, what kind of employee base

are you looking at? So were our company has over a thousand employees UM, and you know we've been growing uh several hundred employee head counts year over year. Uh, and so our our growth has been material in terms of our top line. That's kind of batched our top line growth. We've been growing, you know north you can see our our most recent quarter. We were north of sixty year over year growth in the quarter. Um. The market opportunity that is ahead of us is just sumterial.

We talked about a sixteen billion dollar ham in the US alone. That's a huge market opportunity. You know, we're a company that's sort of operating in sort of the you know, two hundred million dollar revenue range at the moment. There were so early in our ability to continue to penetrate the market. The growth opportunities material. Isabel, thanks so much for joining us and explaining Braise and what you do.

Isabel winkles there. She is the chief financial officer of Brais ticker b r z E. Let's get over to another fan of four on the floor. Barrier Holts joins us right now. Bloomberg opinion columnist and the host of Masters of Business, the popular podcast, as well as a Bloomberg opinion columnist, and I probably most importantly, UM, you make calls on the market for clients. Barry and I wonder what your take is on the Fed path right now. It seems like consensus is that they're gonna taper, run

off the balance sheet, and raise rates. And now we're hearing some people say Golden Sacks says four times, and um, Jim Bullard said, you know, yeah, maybe four times is right. But I've heard a few contrarians out there say, you know what, as soon as we get a twenty percent correction, as soon as the market dies by percent or thirty percent, you're gonna get the plunge protection team coming back to

save us. What do you think? So, first, the plunge protection team has done a pretty terrible job, assuming they exist in assuming that's their job description. We went through a thirty four percent crash, in a fifty seven percent crash in o eight oh nine. I was just looking at peak to trough. Nasdaq fell eighty two point nine from the peak in March two thousand to the lows

in October oh two. I'm not saying these guys are bad at their jobs, but really, how you know, at what point does it become clear that they don't do what they're supposed to do? This they're supposed to be liquidity and the system is supposed to function, but their role isn't to stop markets from rolling over and ps. I don't know if you've noticed, but this is a

pretty hot economy. This is a pretty strong economy. I'm My contrarian take is the world will be fine if there are four increases that bring us up to boo hoo one percent, FED funds rates well and running off

the balance sheet. I mean muhammaday arian Um says he's been saying for a long time, there behind the curve, but he likens this to a football team that is behind with two minutes to go and has to all of a sudden hurry up on their offense with maybe a Hail Mary for the touchdown, but also maybe throwing an interception or fumbling the ball. Yeah, I'm a I'm a fan of muhammadalarians, but that's a terrible metaphor. A football game has sixty minutes and then the clock ends.

Last I checked, the duration of the FED balance sheets is until the sun explodes in seven billion years. So I think we're not in the two minute warning. If you think they're behind the curve, meaning inflation has gotten away from them, and you ignore all of the supply chain issues. Uh, maybe you can make the case that they should have been raising earlier. I don't really see what the problem is getting off of this emergency footing

and onto a more normal rate regime. Money is not supposed to be free, borrowing capital is not supposed to be zero, and you know, the US running a GDP higher than China, that's not supposed to happen. So just taking us to normal isn't isn't the worst thing in the world. So how should your client's position their portfolios barry in what will be an environment where rates will be rising the short the intermediate term at least. How

do you think about that? So you you have to understand why you have fixed income in your portfolio for the past couple of years. Uh, it hasn't been for yield. It's been for balance that is less volatile than equities. Uh. There are a handful of exceptions to that, like tips

have done very very well. The Treasury inflation protected bonds, which are part of our fixed income portfolios, have had a great couple of years and probably are are going to do pretty well for the next few quarters or beyond. But you know, we don't see any of the usual signs that suggest this economic cycle is coming to an end, or that the markets are you know, excessively valued or a long in the tooth. I've been hearing for a decade since you know, two thousand and ten eleven, lower

your return of expectations. Hey, eventually that'll be good advice. But it's been eleven years of of thirteen percent a year. That's a tremendous, tremendous run. And then you add in dividends, it's even better. We don't see any signs that the trend is about to end anytime soon. It's been you know, it's been a fool's error and trying to guess when the underlying trend in the market UH is going to come to. By the way, you should do a column on the things you hear at the beginning of every year.

At the beginning of every year, it's gonna be UH stockpickers market active, is gonna trounce passive. There's gonna be a rotation into value overgrow oath um. Just starting to see that value rotation. Cliff Fastness just was quoted in Bloomberg. Hey, it's a little early to to take a victory lap. But we're seeing we're starting to see that so at least that it appears to be coming true. The the stockpickers market. We we've been hearing there for a long time.

I don't know if you've noticed, but last year, the which was also supposed to be a stockpickers market, they underperformed the SMP five hundred five four hundred basis points unless you want to include dividends, and then it was over five basis not not. Last year was not a stock pick You know what you I've been hearing the last couple of years is Europe is going to be the place to be. It's trading at such a huge discount to the US, and now it's the continents time

to shine. But it seems like they always managed to stimy growth in some way compared to America. I misunderstood that. I thought they were referring to vacation destinations, like what's more delightful than sitting in a cafe in Paris with an espresso on a sunny spring day or full day and a date of your But but you know, so far, the rotation into either emerging markets or developed x US that hasn't been the winning trade I'm hearing emerging markets

a lot lately too, especially on the FX side. As the dollar gives up its gains. I love watching that. Well, I don't take pleasure in it, but I think it's fascinating watching the dollar come down. The Bloomberg dollar in X was eleven nine in November, and now we're down at eleven sixty. Yeah, that's gonna make it a little price you to go to those European vacations. Look, you know, everybody sort of focuses on the new year as if it's something significant. The fact that here we are again

in January doesn't change the underlying trends. Calendars are human inventions. The economy in the market is gonna do what it's gonna do. It doesn't care about the flip of the calendar. Up all right, Barry, thank you so much for joining us. Always appreciate getting your thoughts. It makes Thursday subspecial here on Bloomberg Markets, Barty Ridold's Bloomer Opinion columnists and host semesters in Business uh for Bloomberg Opinion. 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