Surveillance: Inflation with Fed's Evans (Podcast)

now in conversation with Charles Evans. I have had many a guide, a long, long discussion with him years ago at the Council on Foreign Relations, and this is you know that all the FED presidents are hugely qualified, and they're all very, very different. This is a bulletproof freshwater academic on monetary policy and how it dovetails in to

social policy. Let's listen. Hello, I'm Bloomberg's Michael McKee live on TV and Bloomberg Radio World with a special guest, Chicago FED President Charles Evans is joining us now and Charlie, thanks for coming in. It's nice to see somebody in person for a change. More. Mike is going to be here. A lot of people questioning now whether the FED is going to be debating monetary policy or whether we're kind of locked in for the rest of the year. The Fed has said, and j Pal has said fifty basis

points at the next couple of meetings. Would you anticipate something like that running through December? Well, um, you know, we've been discussing the state of the economy and inflationary pressures for quite some time, and the Committee is definitely coalesced around um, you know, moving off the effect of lower bound We've already you know, begun doing that, and as Chapel said, we're going to be moving expeditiously towards

something much more like a neutral Fed funds rate. My own assessment of neutral is in the two and a quarter to two and a half percent range for the federal funds, right. Uh. Um, you know, as the chair has said, Um, you know, we just did fifty and you know, fifties are on the table for uh some period of time. I would expect by the end of this year it could be quite likely that we were at a neutral setting, and I think we would be very well positioned to address them, you know, future inflationary

pressures of three. I'm expecting things to improve from the very high inflation that we're having, but I do think that it's going to take us some time to take care of this. Do you see any probability or possibility or reason to that seventy mess point move would come to the table? Well, I think it's very useful to frontload our policy settings at the moment. We did fifty at our last meeting, and it's extremely likely that fifty at the next meeting, and you know, probably there after.

You know, it's once we get to a good setting for the funds rate, when we can sort of after that, do a more measured pace of increases, say twenty five basis points at each meeting after that. I think that would be a nice shallow path that we give us time to assess the incoming data and know exactly what we're facing. So, um, if we do a little bit more sooner than we can get to that point where we can do the shallow path, or you know, maybe

we take fifties a little bit longer. But you know, like I say, I think something like neutral by the end of the year. Whether or not, you you know, get there sooner or you know, earlier, is not that that that critical. It's being well positioned to address the problems that we expect to face. In three. That's first my first concern, how far above neutral do you think you may have to go to get the results you want.

It's a hard question, um, you know, it's nobody reports what the neutral setting of the FED funds rate is. It moves around over time. It depends on whether or not we've got tail winds or at our back or headwinds that we're facing. And so I think we're gonna be feeling our way around that. Like I say, I've got a benchmark of what I think, and so if we go beyond that, we go fifty basis points beyond that, seventy basis points beyond that, then that restrictive setting a

policy should be working to bring inflation down. We don't have to constantly increase the funds rate to be restrictive. We can get to a restrictive setting and sit there for a while. Maybe we sit there longer at a less restrictive, you know setting, and it takes a little bit longer for inflation to come down. But there are many special factors that have led to the very very high inflation rate that we're facing, and so I'm hopeful that in we're gonna be facing core PC under three pc.

Wall Street would like to know whether if the economy slows, you're willing to slow the pace of rate increases to try to keep the economy from falling down to keep us out of recession, or whether you will continue to be aggressive if inflation remains high. And I suppose that begs the question of whether you see a recession or not. So I'll leave those two questions for you. Right well, we have a demandate, you know, we you know, we are trying to set the monetary and financial condem sans

to support maximum employment and price stability. At the moment, the price stability objective is the one that's most critical because you know, at eight point three you know, CPI UM that's much too high. I think it's going to be coming down. The labor market is doing extremely well. There's tremendous demand for workers, and I'm hopeful that labor force participation will increase. But basically we have a vibrant labor market. So the first order of business is getting

inflation under control. Now as we, you know, get to a restrictive setting of monetary policy, I do expect that the economy is going to cool a little bit by cooling. I mean, we're still going to be having growth. I think the growth at trend levels one in three quarters to two UM one trend is one in three quarters, but I'm looking for two to point two percent as we continue to have a neutral to restrictive setting, and

so that's consistent with growth. If we see something that's weaker than that, we'll have to see what that means for inflation. Uh. If inflation the trajectory looks like it's confidently coming down and we're you know, going to hit our two percent objective or be close enough to it, then you know we'd have a little more latitude. But at the moment, we really need to be focusing on inflation. What's your forecast for inflation over the next quarters and year?

And I asked that in the context of what you're hearing from the CEOs in your district about whether they're still feeling price pressures, whether they still feel they have pricing power. Right. So I want to talk to UM. You know businesses, UM, you know C suite individuals or you know small business, and you know they're facing a lot of cost pressures and to the extent that they've been able to do it they have passed along many

of those cost pressures. UM. I think the days of how long they're going to be able to pass that along are probably numbered. I think consumers are you know, getting fed up with high prices, and they can respond by shifting their expenditures. But but businesses are, you know, facing those pressures. They've raised wages and in many cases where you know, um, you know, six months nine months ago,

we heard that there were intense wage pressures. When wages have gone up, that is actually satisfied and improved the labor setting in those manufacturing plants, and so you know, higher wages, UM, it doesn't necessarily mean they have to keep going up each quarter, each month. And so i'm i'm, I'm you know, I feel confident that businesses are going to get on top of their labor costs and pricing behavior will be more in line with UM. You know

what I think price stability is. I can't reel off what you know inflation is going to be three months from now or six months from now, because there are a lot of real factors that could play out in different ways. And that's part of what we're gonna be looking for. You know, if we get to a neutral setting by the end of this year. We're gonna have you know, many many more months of data to see as a trajectory coming down. Or do we still have a real problem on our hands and we need to

be much more restrictive. Um, we're talking with Chicago FED President Charles Evans. Uh. Let me follow that up with a question, not from me, the professional economist markets watcher, but from the average American. When am I gonna feel like my paycheck is keeping up with inflation? Yeah? I mean it's been very difficult for households. Obviously. Gas prices have been extremely high, food prices are high. I think

worldwide factors are an enormous part of that. UM. You know, um energy supplies, the Russian invasion of Ukraine is hitting uh. You know, gas prices, agricultural prices. You know, a lot of uh weed is produced in Ukraine and that has global implications and all of that. Um, we have very strong demand. So it's you know it, you know, it makes sense. It's what everybody is dealing with. Higher prices, shortages. You can't necessarily get exactly the product that you want,

and it's a lot higher. I'm hopeful that as inflation comes down, Hopefully some of those prices will revert and they they'll come down. Food prices often you know, can can round trip and uh, energy prices too, but gas prices are high and that's always you know, a negative thing for considered more confidence if we can get that in better shape. But that's not monetary policy, that's sort of supply conditions. And wages have gone up, so I think incomes. Incomes have gone up, and you know, the

labor market is good. People who want a job can get a job. That's good for household income. If we can get labor force participation up in some childcare to adult care issues resolved to keep everybody in schools, that will be beneficial for um, the economy. Have you been surprised by the strength of ongoing consumer spending that people are still buying a lot of stuff. Basically it has

been strong, hasn't it. And you know, some of that I think is the fiscal support, but it was very helpful for many households that otherwise would be um in in very difficult situations. Um, I think that you know, the growth of the economy. Many people are doing extremely well, even if it's unequally shared and so sometimes those retail sales you know, come from sort of a skewed distribution

of you know, um consumers and so um. It's nice that the fiscal support packages and the strong labor market, which has helped lower income workers you know, get jobs at better wages and also at better schedules, probably more full time. I mean, that's been beneficial, and so I think that's contributed to the strength in retail, and I

hope that it continues. When you think about going forward, how much confidence do you have in your ability to bring inflation down, given that you've mentioned COVID and Ukraine and all of the other things that are going on, that our supply side problems and the FED works on the demand side. That's right, that's right. I mean, you know, one level I'm extremely confident that we can bring inflation down.

Inflation is the you know, ever increasing prices of all goods, and you know that's a monetary phenomenon, and the setting of the federal funds rate, the policy rate, can address that. What I'm not confident about is we can't bring down gas prices. Gas prices are going to be very high because of real factors, um low inflation is going to be well, they're high, but they're not continuing to go up. But those are real factors, and it's another set of

public policies that need to deal with that. Food prices are the same way. I'm confident that the setting of monetary policy can keep them from ever increasing. They could stay high on a relative basis compared to other prices for longer than most people would like, but we can get inflation down. Um You know, it probably would take more restrictive setting a monetary policy if those special factors

continue to be high. Before we let you go, let me ask you about the balance sheet, because that's the other side of your monetary policy that has to play out. What do you anticipate happening when you start lowering the balance sheet? Should we see um rise in interest rates at the long end because it was designed to push them down at the log end, And if so, by

how much? That's right. So we've increased our balance sheet dramatically, and we've announced that we're gonna let materian assets roll off. We chose among the most aggressive roll off um PA that that we could. So I think we're going to get our balance sheet down to a more normal level before very long that will have a restrictive effect on

financial markets that sometimes is measured. I think for what we're looking at it, maybe it's the same as if we had increase the federal funds rate by fifty basis points on top of what we're actually doing, so we do have that restrictive setting. I tend to think that markets are forward looking. They are, and they price this in pretty much when they know what it is. So I think that effect is already working its way through

financial markets. And we've seen long rates go up some we've seen borrowing rates, auto rates, mortgage rates go up, and so I think it's having that effect. That's helped somewhat with the front loading of restrictive monetary policies, and so that's you know, we're probably better position to be bringing inflation down because of that. So um, you know, I think that's working pretty much as we were hoping. Well.

We wish you luck. Thank you very much Charles Evans for joining us today, the president of the Chicago Federal Earve Bank. Let's get to Annahan Equity Strategistics, Farncy Securities. Anna, the marching pressure from Walmart to target your thoughts. Please, Well, it's certainly a big indicator. Like you mentioned earlier, they employ a lot of people, and as people have a tighter later market labor markets, and yet if people are spending lest the question is can really companies passlong price.

But keep in mind also, John, this is sort of what we're looking for, right We wanted to see demand cool off a bit to balance things, to bring inflation more under control. So you know, it's sort of the what we were hoping for, but also a little concerning on how much this raises the possibility of recession. And we're looking at the physics of a rocket launch right now.

And they mentioned the maximum dynamic pressure. You did this ballet in your physics of undergraduate Let's cut to the chase, Anna, are we at the maximum dynamic pressure of inflation right now? We do think generally inflation measures have peaked, but I think it's going to be you know, using out Chirman pals language here, it's gonna be harder to get that soft ish landing. I think it's gonna be harder to

bring down that figure. People were hoping that when we got this sort of eight percent headline number that it could come right back down. But we're seeing that's going to take several more quarters. But you know what's so important here, Let's go astronautical again, aeronautical again if we can, uh, and the the acceleration function is a squared function. Guessing time on the x axis is the hardest thing to do in this racket. What are the determinants you're gonna

use to guess when inflation rolls over? I think one is a dynamic between really how does that good spending go versus a service spending? I think also to see what is the day name it between when you have a tight labor market and companies are able to have our have to be competitive and raise wages so that consumers actually have more to spend. But how will that offset with actually companies being able to pass along price

because consumers have more money to spend. And then a third component I think that we're under appreciating here is right now, household wealth is very heavily tied to the equity markets. I think we saw historical amount of nearly a quarter of household wealth is tied to equity. So when equities are down like this, it can weigh on consumer sentiment. If we stay down. At these levels, you could see sort of that souring sentiment really start bleeding

into consumer spending. These are the indicators we are watching, but we're not quite convinced yet that consumer is really decelerating. And can you elaborate what you said, which is that this particular series of reports is a little concerning with how much it raises the risk of recession. How So, well, when you talk about what is the possibility of recession

for us, it's still a tail probability. It is not our base case, and we still put the possibility of a recession by end of at around so that's actually quite low compared to where some people are on the street. But the main driver and something that we've all focused on and relied on to pull us out of the recession, post pandemic and continue to driver economy has been the

US consumer. The strength of spending and that willingness to spend not just on goods, but as COVID was relaxed, as lockdowns, relaxed on experiences and get out there and travel and put that money to work and circulate through the economy. So if that driver starts to cool down, then becomes the concern our margins really coming under pressure enough that earnings growth will turn negative, that GDP growth could turn negative again. Not our base case, Lisa, but

the tail risks could be getting bigger here. So there have been a number of strategists that have come on and said they still like consumer discretion area because there has been such a wave of spending and because of the strength and the consumer. Would you back away from that kind of idea based on what we're seeing right now in these numbers. I wouldn't particularly back away, but perhaps it wouldn't be our number one call here. And just to keep in mind, you know, some part of that.

We've been actually pretty negative on the retailing space to begin with, but we're still positive on the sources where you can have leisure spending, we can have those reopening trades, the travel tide industries. On the other hand, what we've been looking at very carefully, especially with the more tightening of the monetary policy here, has been the growth style.

You've seen it beaten down so badly this year, and you've seen the we think we're starting to see the bottom for the growth style, so we're starting to warm up to it again. And when we look at the market adjustment here, it is off central banks, it is off the Fed. I'm focused on the non linearity of their FED decisions they have to make. It's frankly true

for e c B as well. Link equity market performance into the massive challenges the FED has after the July You know, you bring up a great point, Tom, is how our equity is going to handle it? If the Fed continues to tighten and we start to really see that GDP growth slow for us, we do expect GDP to come down, but we also still think that unemployment

rates could come even lower. And in that kind of environment again, where jobs and wade growth is aggressive and wages are going higher, we still think a possibility that equities can go higher from here. Our price target remains forty seven fifteen, and there's a reason for that. We

think that there could be a change in the leadership here. Again, if growth has bottomed and we start getting a better handle inflation, that's gonna bode much wetter for these growth sectors, and they are still a large part of the SMPI A hand, thank you, an a hand well spunk our security. St. Joseph Feldman is with us. He holds court with Dana

Telsey at the Telsa Advisory. We can talk about Walmart and Target, but Joe Felman, I want to talk about what you and I lived April two, two thousand thirteen, the real codification of reg f D. Are these corporations afraid to give guidance to animals like you? Well, I think the corporations are certainly afraid to give inter quarter commentary that would, you know, give too much of an

insight into how the earnings might show up. And when doing so, they do have to make things broadly public and available at the same time, so that that definitely plays into this um and I do think that you you've seen corporations act differently. I've seen investor relations professionals get fired over it. So I think people are very careful to not give too much into quarter information struggle.

When I say, a stoke down off the back of earnings on something that should not be a surprise, because they seem to be struggling with something cha other was obvious to everyone. I don't get that we've got a big execution problem at a single name or more broadly, and when you see two data points, it feels like a broader story it feels like Joe, from my perspective and others two looking in, they're struggling to find the

right balance. These companies have gone from being understaffed, too overstaffed, undersupplied to what oversupplied and Joe, all of a sudden, there's all this inventory and they've done know what to do with it? Joe, how do you find the right balance in economy moving this fast? Yeah, I and I think that's really the challenge. And something actually Doug McMillan talked about yesterday was the speed of all of this that it's really hard to adjust the business that quickly

to play some catch up. Obviously, the consumers moving and changing quite rapidly, and I think you're right. I think that you know, the retailers, we saw this with the Amazon too, where they kind of we're building out to the capacity that they needed at the time during the height of the pandemic, and now you're seeing some of

the gift back. What's really interesting here is if you go back in history, Target targets gross margin has pretty been very stable right around obviously this quarter had really dropped a lot to five and a half percent, and their guidance for the year would imply that it's going to be certainly well below maybe more like I think

that's transitory. And I know the stocks down a lot right now, and but if you kind of really look closely at that line item and look at the way they're operating the rest of the business, there's a lot of pressures right now on the supply chain, on fuel costs, on everything that's just hurting the business right now. I had a brain freeze there, Joe Feldman, because it just got the field cost to the Gulf stream to Davos Wold Lisa, that has gone up to say the least

regulation f D I put two thousand thirteen wrong. That was a little bit ago on regg FD Lisa. I think I see that little violin in the corner that's just very very small. I think that, Look, I don't think that that's probably where people's focuses are on the jet stream. However, there is this issue of what comes next, what's the next shoe to drop? After we saw Walmart and Target, Joe, what's your sense here of the other players that will also see similar hits that are not

yet priced in. Well, I think that you know, those that have more discretionary businesses are likely to see some pressure. Um, you know, we've pleasantly surprised actually to see like home deepon lows have been performing fairly well. Um, you know, in the face of this and everybody thought, well home was going to be done and it's not. At least

home improvement is not. But it does feel like we've seen a slower trend in apparel and in um in other discretion and categories like home furnishings, that is where we see some concerns. So some of the other discounters maybe under some pressure today. Uh you know, I think you have to just start worrying about everybody on the gross margin side and see how that profitability could be impacted by that, even with stronger sales like we just

left from Walmart and Target. So before we let you go, can you just frame this moment how much of a turning point this is for a lot of the consumer discretionary areas and frankly the consumer stable companies like grocery stores and others, especially in light of the surprise in the C suite that to a lot of us shouldn't have been a such a surprise. Yeah, I think that we were all exsuming that the supply chain pressures have been fully factored in at this point, and they're just not.

And we are definitely seeing the slowdown or change in consumer behavior where there's more of a focus on, as you said, consumables basics, getting to work and just drive, you know, paying those high gas prices right now. And I think that that lends well to the more the CpG companies that are out there and the grocers and other value oriented retail where people are going to be looking to save money right now. Joe, Thank you, buddy. As always great perspective. Jeff found on there of TAUSI

Advisory Group. Jukes thinks we need to talk more about Europe. So let's get to Kit Jukes now, the chief effect strategist at suck Gen. Kit your words, ECB rates have been negative for almost eight years. If the economy can sustain positive rates within the next year, the euro will be a lot stronger when it happens. If Kit, let's talk about the if. How big is that? If? Huge? Enormous?

I mean, okay, so the first pieces, obviously the short term um elephants in the room downside risk, which is what if the gas gets turned off natural gas gets really really expensive. That's bad for everybody, but it's spectacularly about for Europe. So I don't see how we avoid a recessions that happens. Even you commissioned admits will pretty much admit that that that will get a recession if that happens. So that that's the first piece. Um. The

second piece. You know, they've been going one way, really lower and lower rates for long enoughter that you know, the first turn upwards, we'll have a significant market reaction. And already you know we have clients asking, you know, where is the where is the real sensitive point on the spread between peripheral and German bond deals in Europe? You know all of these things. So I mean I'll put a bit if in in sort of you know,

three foot high capital letters. Um, it's um, it's it's it's even less likely than Arsenal making the Champions League's The hamewark of your work is in a few paragraphs, you squeeze in a lot on a lot of different countries, cultures and economies. Right now, there is a mass excuse my French folks, pissing match in the United Kingdom over the governor of the Bank of England, Irvin King, the ex governor going after him, Ambrose Evans Pritchard in the Telegraph,

and now there's coming to the defense of economy. So put their legs on their pants on one leg at a time. What's the kitchen scorecard on how central bankers worldwide are doing? Uh, they're doing their best. Look, I mean, the only analogy I can have the central bankers at the moment is we're saying cam Tom Hanks Land is playing on the Hudson, but his playing this time. It

didn't have a bird strike. It was hit with a bird strike, then it was hit with an electrical storm, then it was hit with lightning, and then President putin fart a missile at it, which which Tom Hanks can do that for all the movies we've ever seen. So I I give them a break. They had no chance.

They did their best by flooding the system with money back at the start of the pandemic, and since then they're literally it's why in the end we'll get a recession because this is too hard and critics can can criticize full of kit when you say we're going to get a recession. Talking about Europe, I know that you and your colleagues don't believe that the US necessarily is

headed for recession. Do you think that those dualities are basically priced into the euro US dollar already or do you think this has more to go and you could get to parody and beyond. I think the trouble with the Euro to meet is back to that issue with with a stoppage to the gas which brings the recession forwards in terms of time and breaks through. And I can't I can't measure. I can't measure the downside of the Euro from that all the probability of it happening,

So how can I buy the EU. It's just that's why I find it unbiable at this point in time, and I would go on trading. But yes, there is a big difference in US and Europe. I'm not sure it's complete de presdent. I definitely think it's why treasury gilds have got more upside. We have not seen the peak yet, and when that happens, I suspect i'll see lower levels in the Euro before we've done. I would say, though,

you know we will get a recession. I mean models struggle with the recession because it's difficult to work out the accumulated effect of being bombarded by so many once every five year shocks in a two year period. You sound like a hard landing guy. You just said we'll get a recession. That's not really the cool though, is it? To band magnitude and timing? Where are you on there? I kind of think next year is really the difficult year, but but it could come again. There are things that

can make it come forward. So you know, um, when when you're talking about all prices are upen and saying that other prices are are more, every other version of oil that I use is up more than than crude, So most is jet fuel, diesels up a lot, heating oils up a lot, so they're all they're all up by more than crude. So if we get another push higher and crude, it's going to really hurt. If this summer's harvest to give us brutal food prices, that's going

to really hurt. The housing market in the UK is just threatening to roll over now and yours could follow. So um, So I would say recessions are pretty likely in three in lots of places, I think it's it's just plain blind luck. If we can avoid them with with the with the number of pressures coming to the system. But Europe is right in the firing line. That's okay, awesome to catch up. And just remember you brought up passin tell mc norda and I didn't mention it. Okay,

you know it's it's still friends. Thank you, buddy. I'm really get right to it here, because time is so special with Douglas Cass. He was a Subris partners as the traitor is Paul bentioned earlier. He has been gifted on caution. He's gotten a little more optimistic recently, Doug, What do you do when Bank of America's Michael Hartnett says cash levels are back to the gloom after September eleven of two thousand one, What does young Cass do amid the gloom? Are you referring to the gloom of

the Boston Red Sox? You're going there? You know you think I wouldn't broach the subject of Major League Baseball, Dan, I've you know, you know the Boston Red Sox of the New Baltimore Orio. Oh, those are fighting. And by the way, I'll get to you. I'll field your question a second but the Yankees are now on page with a winning percentage of point seven five oh, to be better than the two greatest Yankee teams in history. You got you think these guys are as solid as twenty seven.

Look for the first time in the history of the franchise, through thirty five games, three players Rizzo, Stanton and Judge hit ten homers or more. This is amazing? Is Bran Cashing a genius? And now, now can you remind me what the question was? The question was the cash build up that's out there is on the edge of red sox gloom. What do you do when you see everybody's saying go to cash. Sure, I'll frame my view right now, which is a lot than the view that I've expressed

to you, Paul and John. In the last twelve months, UM continued to find myself of the view that the consensus has very abruptly shifted from wearing rose colored glasses of complacency in late now being fearful and embracing many of the long held fundamental concerns that had a slugflation um geopolitical risks and a flat world, high valuations, persistent supply chain problems, and obviously two elevated economic and profit expectations.

So last week I began for the first time to increase our net long exposure on the dip on Wednesday and Thursday. As to me getting back to your question about capitulation, market participants seem to have already capitulated, providing potential positive optionality. We began the year while most participants were unprepared. We were prepared. I started up Sea Breeze

at the end of UM last year. By the way, Sea Breeze Partners LP dot com is our new website, UH and our commentary is on that UM and I'm happy to say that we're not only up for the month, we're positive for all of two, which puts us in good stead against our peers and against the markets UM. Everyone me was offside at the end of last year and is starting to go offside this year. They were builled up as we entered the year, and now they're

buried up after a very large market run down. And and I think that forced liquidation and defensive posturing UM on part of the marginal investor hedge funds remains a very important constructive part of my argument. The first liquable rally is ahead the first liquidation was a red sox picture after one and two thirds. Going back to the dug, I mean, seriously, seriously, tom Um, I've I've observed over

time the tops are processes. We saw an important one, I believe in late when the market was top heavy with all the fangs, when the rest of the market was foundering, and that bottoms are so to me, capitulation was the event when you force retail and institutional liquidation and head funds owing to all these redemption requests. It's very important to recognize that in our financial markets, the strongest known gravitational force is produced by the presence of

stop losses and liquidations imposed by leverage. The larger the stop, the grade of the poll. So we have this non virtuous cycle of force hedge fund selling because of bad performance that led to redemptions, and that was a key factor in changing my market view. But there's a whole bunch of other statistics that I could tell you. For example, the stock bond strategy, the return was it was the worst concurrent in the history in a century, minus twelve percent.

Do you know what the second worst performance year to date April was industry four, so is three X that this is so so, so so so important. Well, I did this a week ago. Dog, I did it myself, Paul, this is so important, dog, cass, how do you do equities with the record bond losses we have? I mean I, I am absolutely fascinated by the financial industry certitude. Bonds never go down and we're having a bear market? You and I never you and I mean Babe Ruth didn't

see a bear market like this? Right? Well? Um, in terms of bonds, I think today's target report is pretty important. UM. And let me let me tie it into fixed income. UM. One of the one of the primary concerns, Paul, we had going into was that lower demand from higher prices seemed inevitable and price elasticity of demand UH is something we learned in economics classes that measures the responsiveness of the quantity demanded or supplied of a good to a

change in its price. It's computed by the percentage change in quantity demanded or supply divided by the percentage change in price, and elasticity can be described as elastic or very responsive, or inelastic not very responsive. So we've been fearful for some time that whether it's a twelve dollar smartphone from Apple, a cup of Starbucks coffee groceries at Walmart on costco get used for f one fifty. Lower demand from higher prices is today's reality. But this is

why it's positive. And everyone is going to be selling into all right. So when I see it news, as you said in the prior segment, is the cure for higher inflation is our inflation. And the sort of reaction is ultimately good news from the standpoint of a FED, which will probably not be as hawkish as so I assumed and many assumed. Let it in here because so, Doug.

I mean, I'm a big fan of tar J. When I see a hundred billion dollar market cap stock, it's a real company, real demand, real customers, you know, real cash. Lower earnings down twenty What does that tell you? It tells me if I had a four percent invested position in Walmart, my portfolio just lost one percent today. I'll be honest with you. I mean, this is an environment pole where uh, the man is separated from the boys, and I maybe still be a boy. I don't. I'm

not sure yet, even though we're up on the year. Um, but you know, so where do you want where do you dip your toes here, Doug, I mean if if, if, if you feel like you've seen some type of capitulation, where are you dipping your toes? The two areas really quickly are the banks, which is by far my largest position. I have a lot of background um and home builders. All right, Okay, I gotta ask about Amazon very quickly here,

Cloud on fire, cardboard boxes, not so much. You've been long Amazon, you say it's even a long term hold, Doug Cast on Amazon. This may we markedly reduced our exposure to Amazon at around I haven't take end position, which I plan on increasing. Okay, Doug Cass. Thanks. Can you come on the next time the Yankees win. I'm not available tomorrow morning, Okay, Doug Cast, Thank you so much.

This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course, on the terminal. I'm Tom Keene, and this is Bloomberg.