Surveillance: Recession Not Likely, Says Emanuel

just the gray zone. The gray zone is. Look, we had a reasonably epic bear market from January to June that was not only the epitome of don't fight the Fed, but the markets took the hawkish narrative and ran with it in an unprecedented way, causing you know, if you look at the stock bond quadrant, uh, you know, the biggest losses in the combined sixty forty portfolio we've seen in years. And then it all turned in June and

into a few weeks ago. Uh. And now we're at a point where do we go back to the don't fight the Fed mantra or do we think about it and we think about the unfolding, you know, perhaps the FED easing off, which is not at all in the script right now, even though people this is important to that point. In the last twenty two hours, we've heard here David Rosenberg and Looked till You of Wilmington Trust

both scream the disinflation story. Edward Hyman screams. Ed Hyman says, we're going from eight ish nine ish and we're going down, not to two, but we're going to four percent. What does your world do if we get an ed Heiman disinflation? Stocks do well? Stocks they do double digit well? Like do they roar? Not in this environment, not yet, because that likelihood is that if that happens. Ed's view of one percent GDP is probably where we are in and

that's still a constrained environment. But I want to make a point here. Okay, you've got three FED speakers today, Okay, and if you think about it, going back to the first hike in March, every time there was an extreme sort of market response to anything that Pal said, both either hawkish or dubbish. The FED speakers come out and have moderated the tone. It's going to be very informative what they say. Can we give him on every day the other day, I mean, just to lighten it up here,

people can talk to his people. So far, Julian, to your point, the other FED officials have absolutely double down. They have not watered down j Powell's message at all. They've gone quite the other way. How does that inform your assertion, which is rather dramatic, that the growth led rally is over. You're basically repudiating this idea that big tech can rally in the face of perhaps more economic weakness, even with a FED that is determined to high grades. Well.

And again, it's surprising to the extent in the last couple of days how much the other FED officials have doubled down. But what it does is it just when you when you look at yields, you know they're going up on the short end rates, but also when you think about the fact that tomorrow we're gonna start billion a month in QT, it's hard not to make the case that yields on the long end or going up

as well. And again, as we've seen in this positively correlated stock bond world, that's a massive headwind for stocks, particularly for growth stocks. What kind of downside are you seeing Julian. I would say the key here is does the consumer hold in in September? If you think about it, one of the anomalies of this year is that consumer sentiment has been absolutely abysmal the entire year, and spending has been fine. Obviously, that's one of the strangeness is

about a new inflationary environment. But if you think about it, you know, could you get into this idea where back to the office, we're back to school Septembers is challenge? That is the kind of environment. If the consumer holds in, we could be okay, we you know, but if not, there's a potential retest of the lows and store. Well,

that's just a bigger question, Jenny. And it's not about whether inflation comes down to four percent, it's what price you're wanting to pay to get inflation down to four percent? Was unemployment when inflation comes down to four percent? What's happened at g d P when inflation comes down to four percent? Jenny? It's not that easy, is it just to say we come down to four percent, that's good

for stocks? No, not at all. And and look, if we've learned anything this year, or I'd argue the last two and a half years, is that the tail outcomes. You know, when people talk about black swans, they happen a heck of a lot more frequently than we would have ever imagined. And that's really what you've seen to a large extent this year. And and so you know,

there's a lot of different potential outcomes. As we had into the fall, wet trying to say, super super open minded about this, Judy, and can you help us do that the short and shadow consensus around a recession in America? How are you being the team thinking about maybe the tail risks here? So we continue to think that you're

not likely to have a recession. But if Ed's view of one percent GDP next year is correct and we see asymmetrical pardon me, symmetrical risks around that number, it's still going to feel for asset markets from time to time as if there's a recession that argues for higher volatility. And then again, you know Ed said it a couple of days ago, it argues for humility and forecast. As that sent out the memo, everyone get back to the office. There's a real question did he do a Solomon the memo?

You know, day after labor day. We're we're we're we're guns blazing. Get back in that ties a backup notice as wold something, did you notice that a message when was with us from government? I noticed the tie was back, but only after the interview. But the tie was the time pandemic. Yean took it off both times. Gone Tom, the tie is gone. No, Jillian, thank you. It's got to see you on the open. Christian Nodding joins its

collobal chief investment officer at Deutsche Bank Private Bank. Christian, we have taken out the June highs on a two year year old. And the question a lot of people are asking is whether they secuity market has to test that June loves your thoughts well. From from our point of view, if you think from a gross perspective, we do think there is at least my procession coming in the US, and there's also a recession unavoidable for US

in the Eurozone. And from that perspective, I wouldn't be surprised if equity markets going on a bit further from here. And we have been calling um saying the June Judy uptick is probably not is a bear market. Relly is

probably not. Where we end we've been arguing for by the next tip, and I wouldn't be surprised if we see and if you look at the the markets, is another three four or five six percent depending on the markets downside, I wouldn't pull out that we get there from from our point of view, Christianity, what do you do with bands? The chart that I put up earlier, price flat yield, I guess up a little bit. Global bonds on an aggregate basis are back eleven years? What

do you do with that institution? Like? Well, from all point of you, it has been right to be short duration, and we kept it. So from that perspective, at least you can avoid to be super long duration, as as many investors sometimes have to be. I think that's number one. And then you really need to look at quality from our point of view, So um you had discussed before. If there's a recession, what doesn't mean to credit spreads?

I think we also need to look a little bit ahead, as we don't expect, at least in the US sustained long recession. Maybe it's two quarters, three quarters. I think if spreads are widening, there is an opportunity if you look into investment grade. I would be a bit more careful on on the high yield side from our point if we don't think these levels which seem attractive but from our point of view, is not where we want

to go in right now. Christian, is is European a toxic place to invest in right now based on the energy backdrop and some of the volatility there? Or are you still seeing perhaps some opportunities even ahead of the US. But I wouldn't call it toxic place to be very honest. But of course it's tough to be very optimistic about you at this point in time. Let's call it like this.

I think there are opportunities. If you think the e c B is is doing quite a lot, as we do, we can imagine over the next twelve months the ECB is moving from zero now to two, which is quite something. I would say. There is I think opportunities in European financials which could profit from that. But for the overall market, it depends really on the energy crisis and how the winds plays out to be, and from that perspective, it's not going to be easy for Europe the next month.

I think, Christian, did you just say that you're investing in European banks. Yeah, I think European financials have upside because, as I said, if the e c B is moving, they can profit from from a higher interest rate level. And from that perspective, now we are at zero and I would expect the ECB not to look so much at growth because their targets really price stability and to move up in increasing rates. And from that perspective, I think that would be positive for them. Yes, the Christian

how can it to a recession? What's more important here? It's the right hikes, So they came a backdrop. Yeah, but I think yeah, recession, yes, but also here in Europe, I think it's not a recession which is a deep recession, which which takes quarters and quarters. From that perspective, yes, there is some implication and you have not seen a massive movement upwards. Although the market is pricing some of

the s B hikes, not all. I think the e CB is doing more and from that perspective, I think there could be some positives being overgrowth looking at rate hikes. From our point of view, well that's the try for the Brive Christian, Thank you, sir Christian. Now in their bank private bank. Deborah Cunningham wakes us up for September Global liquidity markets officers Federated rome As were thrilled she could join us this morning. What does CFOs do in September?

I get the idea of equities, everybody comes back, They recalibrate, blah blah blah. What does CFOs do about the issuance of UH bills, notes and bonds come September? Well, I think they look at what the plans are for the rest of the year, where they're going into the next year, and decide on short term, long term how much UM you know, in in what secretary of the market they're issuing. We'll see debt come come into the marketplace. I agree.

Robert Schiffman has a stunning essay out on Amazon at Bloomberg Intelligence this morning of the financing that they could do for a one billion dollar possible transaction just to get the firepower in year world. Is a lot of debt going to be issued just to get the firepower ready?

You know, I think there have been companies that have UM have have already termed out some debt taking advantage of what they think are the shortest or the lowest rates that are going to be UM, you know, available to them for a while as inflation continues to be an issue. UM. But I don't think it's everyone. I think you've still got you know, asset backed issuers. I

think you have corporates. I think you have financials that are all looking still for additional debt financing in the short term sector as well as maybe the you know, short to intermediate area of the bond curve over the next UM, over the rest of this year and into two thousand and twenty three, debor you've got a front row seat and to one of the biggest questions in markets coming up, particularly starting this week, with the acceleration of the runoff and the balance sheet and what that

will do with respect the removal of liquidity in up markets, how much that will inject volatility, UH into a lot of the banking sphere in particular, what's your view in terms of what you're seeing on the ground with liquidity exiting certain aspects of the market that really have been fueling some of the frontier areas well. Certainly, you know, it's been going on since June. Now it's gonna double, you know, starting next month, starting starting tomorrow, UM and

it's been masked by other issues in the economy. So you know, what we have seen so far from a roll off of treasury and mortgage backed securities has already been overshadowed by the increasing rate environment that we've experienced and the sell off in those securities UM in response

to that. Uh, you know, the expectation would be as they double it, you're looking at something that has an impact of probably another twenty five or fifty basis point, like tightening by UM, by the f O m C. And as such, you know where where where are the buyers? Who are the buyers? UM? We have, from at least a treasury perspective, however, been in you know, sort of a supply demand imbalance where there hasn't been enough in

supply in the marketplace. So it's really gonna be welcomed, I think to some degree, for you know, the most highest quality treasury securities in the marketplace. From an MBS standpoint, there may be a little bit more resistance, but it's smaller volume there as well. Debra, gotta leave it there, thank you, Debora. Kind of federated. I think it's coming back, and obviously a lot of this is just gonna have

to the macro environment. You know, if we see markets crash again, we're going to see crypto crash along with it. I see a market recovery, we're going to see a crypto recovery along with it. But I think this is you know, it's flushed out a lot of the things that needed to be flushed out from the crypto space anyway. It wasn't dead, dead, bath and beyond. But go from billion dot eight billion network net worth makes it difficult.

Two thousand four Sam Bankman free with David Rubens and this is an extremely important conversation for all wired up to crypto like me and Lisa. Mr Rubinstein joins us this morning. Look for that nine pm tonight. Um, this guy's controversial, to say the least. What is his cred What is the thing that he has that makes people in crypto listen to him? Well, he's very smart and he's made a lot of money. When you make a lot of money, that's still a lot of money to David.

But at the age of thirty he was worth twenty two billion dollars. He became the youngest person to sign the Giving Pledge, and he's committed to giving away all his money. He basically spends nothing on himself. He lives in to Bahamas, basically has no clothes of any consequency, wear shorts and T shirts and tennis shoes all the time, listen to dorm with eight a friends or so. He only cares about certain public issues and public policy. But he's very unusual. How does he control or what does

he believe the price of bitcoin will do? How does it discover a bid at whatever level? Well, I didn't ask him that because he's basically he operates f t X, which is an exchange, so it gives everybody the opportunity to buy or sell bit coin or other cryptocurrencies. He doesn't know what the right price should be. He recently bailed out a lot of companies that had troubles. He might lose money on all that, but he feels it was good for the industry. So why is this industry

important from a social benefit kind of way? If he is David incredibly idealistic and looking for the em betterment of a social order, Well, his view is that people who have money should give away that money or do things for good social purposes. And that's what he's always believed and he now has a fair amount of money, and he's giving away a good deal of money. He's also involved in politics, and he gives a lot of

money the politicians. He thinks it's good to get good public servants in government, and so he's trying to back the ones he thinks are good. He has an unusual lifestyle in that he's really not buying any of the accouterments of wealth that you normally get when you have, you know, multi billion dollar fortune. I have to pivot a little bit because David Rubinstein. I caught an article that was written about you a couple of days ago about your potential bid for the Nationals, possibly the Orioles

should they come up for offer. Is this is this a moment of passion or is this something that's actually an investment at a time when a lot of people are looking for alternative assets. Well, um, you know, I realized when I was young, I wasn't going to be a professional baseball player. I thought I was a great star at six or seven, but when I got the eight or nine, I realized I probably wasn't going to make the major leagues. So I figured if I ever get the major leagues, I probably have to do it

as an investor or an owner. So I have I am from Baltimore. I have looked at, uh whether buying a baseball team makes some sense, but that's too early to say. What's going to happen now? I at least that was a very dangerous question. Why is it dangerous, David? It was a dangerous question. Gonna come back again. UM to the point of baseball and sports the stereotype of big hitters as they can buy any sports team and

it never goes down, It just always goes up. Why is that it's hard to lose money on a sports team generally when you own them. The NFL teams they make money as hand over fist um, Baseball, basketball, um. Other teams they make money when you tend to sell the team UM. And so people rarely lose money selling a team. In the end, if you you can support the team without current income from the team, you can do quite well just holding it for quite some time.

But if you look at most people who have made money in baseball is by selling the team, not operating a daily On the other hand, some teams are very profitable on cash flow basis. Where are you and Carlisle with the investments over the years on public investment in stadium. Now, you don't need to do that in Baltimore because Camden Yards is truly one of our jewels. But but should public funds be spent I'm trying to think of the city right now where this is a raging debate should

we buy new baseball stadiums? Well, every every government official presumably is elected by people, and they make the decisions that hopefully reflect what their population wants. So populations tend to want these things. People like the sports teams. You have such an enduring place in philanthropy. If Mr Sam Bankman Freed enjoys going from twenty two billion down to eight billion, and let's say bitcoin cracks and goes down to whatever, twelve thousand, whatever, does he change? I don't

think he changes a lot. He's remember, he's not spending this on his personal kind of uh needs. He's not buying homes or planes or things like that. And I think whether he's worth eight billion, twenty two billion, or one billion, I don't think he's going to change very much. He's very young, he's only thirty years old. I'd like you to come back and talk to me for one hour about the National Archives, which is being dragged for

the mud right now. I know this is a third rail for you, and if you find the time and the energy, I would love to do a half hour non stop on what is anytime, heart and soul. The National Archives is a great institution in Washington and has all of the records of the federal government and it's

been around from the nineteen twenties. Um, they don't have a current head because uh, David Ferry O resigned, were tired, but there will be somebody who is likely to be confirmed soon, the first woman to be the chief arcibus United States. She talked right around me there. What if the right wing part of America goes after your National Archives with your philanthropy on magnet card and the rest, Well, there are people in Congress, so I think we'll prevent

that from happen. System will prevent it, I hope, so, right, David, Thank you so much, David Rubinstein. We know tonight with f t X CEO Sam Bankman Fried and as Lisa Bramwitz said to me in my ear, Orioles three games behind in the wild card race as well. Thank you for that information. You keep throwing me under the bus, right, and you have the badge words tomorrow. This is the

Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten AMI Eastern on Bloomberg Radio and 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