Surveillance: US Inflation Cools

calls of two thousand twenty three or recession. But it's out there, son there. I've got to ask you your arch call. How have you recalibrated your recession call? And how do you recalibrate after this inflation report today? Sure? First, thanks so much for having me, Uh, no doubt. You know, you look at the headline numbers, you look at core better than expected decelerations in a in a number of items. I think, interestingly we didn't mention it yet, but rent

to know we are were actually strong. They rebounded, uh and bounce back up point eight point seven percent. Those are the sticky items we know we're going to be there. I think in terms of you know, the market certainly doesn't look at nuance at this point, and I think rightfully so because it's at a lower print. But if you think about some of the nuances here we u Mike mentioned you have medical services inflation in the CPI very very weak. That's something that sticks with with us

throughout the rest of the year. But it's a completely different story in PC and so I think a big question and kind of story over the next year will be PC and cp I are going to converge a lot. Uh, They're converge a lot because you have different measures of health care inflation in the two of those, and you're gonna se disinflation in both of them, but it's gonna be less disinflation in the metric that the FED looks at and the and the metric that the FED targets.

How do you think Cham and Pound aviogates this one tomorrow? Uh, you know, it's it's one where obviously they can step down to fifty basis points. I really do think that they want to step down to twenty five basis points as quickly as they can, and so data of this nature allows them likely to do that. In the February meeting. If we get another data point like this, and that really then allows them to calibrate policy the best that

they can. If there is a path to US soft landing, going to down to bass points in February helps to optimize that. I think they also want to avoid this kind of stop start tightening cycle that they may have to do, meaning pause only to rehike at some point. I think they can avoid that the best by stepping down to twenty basis points at the February winning this

type of data helps that well. Although I do want to go to nil Dot's point because it is a salient one that this essentially gives people more money on a real term, on a real basis in order to spend further, which only prolongs this economic cycle for longer. How do you factor that into the flip side the bullet case, which is saying that there is this natural

disinflationary cycle that is taking hold and set to accelerate. Yeah, and I think it's best to to think of that through chair PILs three different components that in the basket. You know, we're seeing very clearly core goods and disinflation and deflation coming in, you know, Rent and know we are we think twelve months ahead, given private rents are

really going to be decelerating. It's that third part of the basket that creates a lot of uncertain DAN is tied to the labor market and wage growth, and there I think core services X shelter where we're likely to see in healthcare and these other components as we look ahead. If you're not seeing demand destruction as much as the FED needs, if you're seeing financial conditions ease substantially on these data, it does make their job harder. On that

part of the basket. We can still see a lot of disinflation, but the question is does that get us simply from where we are to three percent? How do we get from three percent to two percent? And that's I think the more difficult part. I think on number one question for cham and Pounds tomorrow, the risk of doing too little? Does it still out why the risk of doing too much? How do you think he answers

that tomorrow? I think he's still leans towards yes, meaning that they still want to lean towards overtightening rather than undertightening. But I think the committee is very divided on that that question um and I think he will have to balance that, and the more data we get of this nature, certainly that the risk balance comes comes into better balance as we look ahead, you know, stepping back, it's two data points. We're still at above course c P. I uh.

They've been harised a few times in the past, and so I think that they will be very cautious about pulling the PUG. I think that's why I'm far more interesting Tom in the risk management question for Chairman Poal. You brought, agree with Max, a couple of months of data. We'll get the projections for whatever they're worth. But ultimately the risk management question tells you a little something actually

about the bus of this FED going forward. I agree, And I had fold into that another phrase financial stability, which has really slipped away in the dialogue the last number of weeks. It was their big particularly the I m F perhaps on the SMPS back at four k, right, people aren't so worried about financial stability. Apparently we want

to see it. I mean, we've got to continue to answer John, are we threw highs yet in this recovery and we went up and we pulled back, But I mean there's still a move from more than two percent on sp it's a party. Move yelds down by fourteen or fifteen basis points right the way through the curve. Two's out to tens and that dollar witness and make sure wrote dollar one six thirty four and big deal. I've got my cat ready to go to John. Very good to get to am as well, Matthew Lozetti of

Deutsche Bank. Thank you so uh this is important. Now we need to get an equity update as well. John, do you want to tell us about the nine o'clock and something about moving on? Well, I want to move on, but you know I'm not focused on Croatia beat Argentina with the new slow that we had to shocked. I mean Troy guy asked his only book because you want to talk World Cup soccer with him? Does have a

chance of Mark and Stanley. That's the tastes it. Troy's here to talk football, FS investments, Matt hornback to talk about what he's here for football Stanley. Gary Chattery has given us the preview for tomorrow France. Yeah, big fan. Looking forward to that conversation and the next time I'm blame back answer my question. You have a choice, just Lozette does Deutsche Bank. Just that's not even set down Deutch Bank, Like does the whole place just stop at

two o'clock. Yeah, okay, you can go to I can leave us. Wonderful this CoA have a chance. The answer is yes, of course they have a chance. Look what they did to Brazil. Okay, okay, that's a final word here we get lucky this morning. Joanna us around the table. Julian Emmanuel, the chief equity strategistic ever Core Si. Julian, good morning, good morning. We haven't had the cathartic moment according to you that the low earlier on this year is a low, not v low of this bear market.

Why look, if you look at past bear markets, there is always that moment, and even in the sort of strange ones like the fourth quarter of ofen when we were in that you know, three month de grossing bear market, you still had a cathartic moment where people just said get me out um. And essentially that kind of selling

pressure really creates the buying opportunity. And for us, when you look at two, yes, fatility has remained elevated and we have strangeness going on this week with the Vicks climbing as the market has climbed, but you have not had that moment of pat There really has been very little emotion in this two questions. What's a vixed level you need to see? It's not forty, is it? Uh? Ultimately will be cool. Everybody wants to know when you're sitting at that little table that that ed Hyman's got

with a black pen. How you link the Emmanuel world into the ed Hyman world? You do it? In your note is ad alludes back to the seventies, the forties and the thirties. How is this inflation in this moment in the next year allude back to those troubled times. So it is very clear on this and and we we certainly agree wholeheartedly this is not the nineties seventies. The metastasizing effect of inflation uh at that we had for an entire decade is not there. Uh you know,

clearly we've had these problems. However, we're on the other side of it. We're seeing these readings start to come in. But the other aspect of it, thinking about the nineteen thirties and the es and actually en seventy itself, is this decline in in money supply. M two going negative. That's a risk that the FED might have to step back and reassess. Just do you understand that so ce

J Lawrence. I mean you're taking head back to see J. Lawrence when we go into him three m. This Well, it's look that Thursday afternoon release of the money supply was world stopped. Absolutely. What's going to lead the equity index is lower at this point, given that big tech has already sold off disproportionately, we think that story has more to be written. If you look at it value

versus growth. The extremes are certainly less extreme after the year that we've had of growth under performance, but there is still really an embedded passion for let's say, fang uh amongst the part of the public whose equity holdings remain near all time highs as a percentage of household net worth, and we think that is going to be worked off in certainly the first six months or so. Can we talk about consensus just briefly. You published a

little bit later in the year you white it. You white it, you published, and it sounds a lot like what we've heard already, which is next year dip and then we rip when we end the year at that's the call from ever coot Julian. How do you feel when everyone sank the same thing about a year ahead? Very uncomfortable, very no bones about it. And I will say that the most bullish thing about the set up right now is the fact that my competition on the

strategy side, the average price target is four thousand. Okay, And you know I am not a raging bull by having a last time we were forecast in a flat market rent. I don't remember it. I don't know that there's any precedent for whatsoever. And that, along with the fact that this recession is the most anticipated recession of our entire lifetimes, really gives you pause for the potential for upside here. So where could the consensus and you

be wrong if the recession doesn't come. Okay, we all know what's happening, we all know what the components of it are. But again, think about it. Would we have ever thought that we would have seen two negative quarters of GDP like we saw in the beginning of this year and that not be labeled a recession for the first time since the nineties. If somehow we skate on through you know, zero growth slightly below zero, Ed's forecasts

zero percent GDP. That implies a mild recession. But if it doesn't happen, there is you know, upside in our view. Do you remember when you were challenged with talking about bitcoin? Gentmen, A good old thanks. I do. And and basically from our point of view in in thinking about it though is and we talked about this constantly, is that you're interviewing it continue is that there's an aspect of the technology,

the blockchain. Most people would agree that there's validity to that technology, the same way there was validity to the transcontinental railroad system in the eighteen seventies, but yet the entire industry went bankrupt during the decade of the eighteen seventies. Before for further economics, a space that attracted a lot of capital and a lot of coverage, you covered it

at your own shop. And I just wonder, for let's use that the core as an example, how difficult would it be to convince Himan now that this is something we should cover at the firm. Well, look, and isn't that kind of the point right now that this is going to be kind of hands off for the doubts for a long long time still to come. There's no question about the fact. And then again, if you think about the price action, the price action is telling you something.

The fact that since this scandal was uncovered, the price of bitcoin really hasn't moved materially lower after the initial uh, you know, tribulations. It tells you that there is a fundamental belief in the technology, but yet is is typical

for most markets. Once there's that sort of feeling of disgust, you're gonna have a year, two years, three years, maybe more of just sideways price action to where only the true believers remain in the industry, and then likely you have your next bat of progress to you were taken about exactly that. I'm trying. I go with the railroad analogy, but I can't go there. I think this is something else, and I go back to Ken Rogoff in his most courageous book I've ever seen of the Generation, The Curse

of Cash. This is about non regulation. It's like finance, far more international than ft X. I'm speaking as an amateur there, don't quote me. And the idea of this not that it was a scam, but it was wrapped around un regulated activity from day one and this morning, John the regulators. The adults showed up this morning. Well, the headlines and the adults, the sec challenging bankman freight

with the frauding investors, Judy, and this was great. He can we just do this on a monthly basis, maybe even you know, every two weeks, just coming to the studio him and along, I'll sit out, you can, you know, okay? Instead of counting a proto conversation. It's extremely important that we dovetail in here first of all, to find the one congressman in America that will root for Croatia today against Argentina. And that would be the gentleman who is the fabric and soul of Dutch America. This is in

western Michigan, North Kalamazoo. It is the second Congressional district of Michigan. Yes conservative, Yes, Dutch American, but also fixated on the new finance of America. Buildozinga joins us right now, Republican from Michigan, thrilled he could uh join us today. I've got to talk world coupy of the congressman first though, you've got to be rooted after what the Netherlands went through with Argentina. I mean Croatia has a chance today, right, Yeah,

Croatia has got a chance today. Now, I will note that the Dutch beat the United States. That was a little tougher conversation. But I know all the football talk has gotten me very excited about my Detroit Lions. So that's true, hottest team in the NFL. So a little different football that is. I've got it's it's gonna be a good day. I've got Michael Barb briefing me on that in Bloomberg Radio on a daily basis a legend

from Detroit to the east. Congressman, I must ask you about this meeting this morning at ten am, all the emotion and all the politics. I want you to take the bizarreness of bitcoin, crypto, blockchain. How do you explain this moment to your conservative constituency. Yeah, Constituty, seeing frankly two colleagues as well, and uh, we've all of us on the Financial Services Committee have had uh colleagues of

ours coming up to us. Uh and you know, and and not to mention obviously the constituents saying what is going on with this? And the sad element of this, Tom is that this situation is creating the conversation, which is not a healthy one, or the direction we should go, which is maybe we should just ban all of this. You know, it's too confusing, it's a way too many options and our opportunities to to cheat, lie, steal in it.

So how about we just ban it? Well, that's not gonna happen, you know, and we we've got to remember that this is more than just about crypto. It is about the blockchain technology that underlies that, and that is going to be transformative for the financial services but also healthcare, you name it. I mean, on my backgrounds in construction and housing, Um, you look at what you're gonna be able to do in that field with with blockchain technology.

It's all very exciting. But this which appears to have all the hallmarks of Enron and Bertie Maynoff blended together, named Sam Bankman freed Uh, that is putting a very different spin on what the what the conversation has been here in Washington. Congressman, how give you the timing of the arrest given the planned meeting this morning on Capitol Health Well, um, I would assume I would certainly, let's hope that that Ginzler's revised calendar release yesterday had nothing

to do with that. But I have been talking to a number of my colleagues who were former prosecutors, who are saying, well, wait a minute, this if if you're giving a witness or a potential UH potential mark UH an opportunity to come in under oath, spend four hours in you know, just freewheeling conversation with Congress where they might just end up purjuring themselves. Why would you not give them that opportunity. So it's got a lot of just kind of question marks around own that about the timing.

I'm welcome his arrest. I what I don't understand is why it wasn't a week ago or a week from now. Why did it have to be yesterday or last evening? What do you think would have been accomplished and what do you want to be accomplished at today's meeting. Yeah. Well, and of course, as you know we're having UH the new interim CEO Ray is coming in UH and I would have wanted to hear his answer. The conversation that I was going to have was going to be surrounding

uh FTX dot com. You know, the separation between uh US as well as international funds, and was there commingling of that illegally potentially if there was a U S dollars getting put into those international funds like that, I wanted to hear from both of them what their take was and whether there was any any evidence of that, because I want to protect US consumers and I want to protect US taxpayers as well, because there's obviously been some plans for we gotta bail it out, which can't happen.

I mean, people have looking for the Secretary of Treasury, whether it's yelling or before. I mean, you know this stretches back a number of years and administrations, Congressmen, but you've got to believe at some point we decide if bitcoin and all that is an asset, is it blodable, can you audit it? And can it provide text advantage when it has a huge gain to the I R S and such? Are we at that point right now where we need to codify bitcoin to be an I

R S item? Well, there's not consensus of that yet. And look you've got you've got some arguing it's commodity, some arguing it's a security. Uh, you know, we like things to be either fish or foul here in Washington, d C. And it turns out this is a platypus right, it's got it's got hallmarks of both UH and we we have not reached that consensus. Clearly, Gensler Chair Gensler believes, well, he did believe when he has had to see f TC that it was a commodity. He now seems to

think it's a security. But you know, we we we are going have to wrestle with this one right now. I should know it. Also, by the way, we have not seen Gary Ginsler in front of our committee in over a year. It was last October. So Lisa was asking, you know, what kind of questions you would like to ask today. I'd like to ask what has the interaction been with this Curies in Exchange Commission UH leading up to this point? And that's a very important thing. Sam

Bankman Freed was here in December of twenty one. It's ironic that he would have been here more often than Gary Ginslo in front of our committee. Carson, I've got to ask you this, and we do this with all of our politicians, particularly when they're not lawyers. You are steeped in the core industrial process of America and sand, gravel, crushed stone, that's what you do out in western Michigan. How do we jump start investment in those core industrial

and housing construction processes. What does Washington need to do to help somebody not busy and gravel right now? Yeah, Well, and here's the interesting thing, Tom, is we actually are pretty busy. Infrastructure has continued to go on, and your last guest was talking about that, you know, some of those underlying pressures that normally would have had us going in a different direction. As we've seen inflationary pressures still continue. There's still a lot of activity, but we've got to

we've got to solve this. Uh. The supply chain part of that is in construction, is is making sure that we've got domestic oil production in world oil production because of a barrel of oil goes into PVC pipe, shingles, ash for all the you know, siding, all of those things. So if we're if we're looking at how to housing and infrastructure, we've got to make sure that the materials and the labor is actually there and available. Cox thank you so much for your time today. From the second

District of Michigan, Billa Zinga, thank you. We have inflation here in two hours, and part of inflation has been your gallon of gas. And for business diesel and Maria send has been a huge value of Bloomberg surveillance in Bloomberg worldwide and joins US now from energy aspects uh A Marina. Is oil disinflating or is it becoming a true deflation area item within the reports at eight thirty. I mean, look, in the near term, it's obviously been deflationary, right,

We've seen all the prices collapse. But I will say this has got very little to do with fundamentals. Yes, there were good fundamental reasons why you know, we were expecting around the year end that did materialize, given the new Chinese long gowns, French strikes, all of those factors. Right, Sure, we should have probably been in the low nineties, late eighties, but not collapsing down to where we have. I'm talking

about Brent here of fort Um. This has been a massive year end liquidation event, Lots and lots of funds of liquidated and I think that's what's drag prices here, and that's obviously been deflationary, at least in the near term. I just don't think this is gonna last. Well, it's not gonna last, But when's it going to go and what will make it go? Is it a sense of Pacific room demand, is a global demand or is there

some supply adjustment. I think it's going to be demand, and I think it's going to be Asia, China in particular, that's going to be the biggest driver of oil markets next year. They are finally giving very clear indications of reopening. So far, you know, we've been very cautious and we've been kind of expecting April onwards. But yesterday we put out a note we raised our Chinese demand numbers because these are the very first concrete they have taken, and

I think that is meaningful. Again, it doesn't mean overnight China can reopen. It will be a slow, gradual reopening. But imagine Tom, it's been three years con February that China would have had COVID. We've seen the kind of pent up demand in the West when the West opened up, and you're talking about bill Land, one billion plus people. The bent up demand is going to be huge, and you'd appreciate this is the multiplier effect. The impact is going to have on the rest of the region. Korean

exports highland tourism everywhere. I think that's where the big demand push is going to come from. So why is that not being priced into markets at all? Why is nobody following through on the story that everyone seemed to be on board with not so long ago, that are reopening in China would be bullish for oil prices. I these there are two things for me. One, I have a feeling this is a we need to see it to believe it, because we've had a couple of quote

unquote false starts right even earlier this year. People after Shanghai, we're expecting loosening of restrictions that didn't quite materialize um and they are still not buying crude in the market the way they used to. That's because they bought a lot of crude in November. They need to run that down. So I think both of that those things need to go inside. And more generally, it's your red right. If people have squared off their books, they don't want to

necessarily put to positions now. Having said that, if you look at the curve, if you look at the price set right now for three, it does look extremely attractive. You don't need major supply losses to tighten this market up. Just the end of the SPR and China reopening does provide some huge, huge bowcases for next year. Yeah, I was gonna say, the strategy in petroleum reserve releases are

still ugoing, the last one having just been finished. With respect to the distribution, how much has that influenced the price hugely? If you take a step back this year, what has actually happened is that we haven't lost much while the door from the Russian invasion right, because the embargo has just only kicked in. Since the invasion, we have had two hundred and seventy million barrels of global SPR released and maybe half a million barrels of of

Russian losses. So you can do the numbers. And yet commercial infantries, yes, we've built, but only built by about hundred and fifty million barrels. So had it not and for the strategic petroleum reserves, we would have run out. Avoid example basis of energy aspects. This is the Bloomberg

Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten a m. 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.