Fed Hawks Take Flight

hawkish than this. After raising interest rates by a quarter percentage point, policymakers are projecting the equivalent of six more such increases this year, and this comes as Russia's war with Ukraine rages on, clouding the outlook for the global economy. So what's it all mean for markets? Well, we're lucky to have two veteran FED watchers on his guests this

week to sort it all out for us. But first, Fili Donna, I have to point out that we are recording this podcast on St Patrick's Day, March seven teeth And for guys like me you know of Irish descent but really have never stepped foot in Ireland, we have a few traditions on St Patrick's Day, so so let me just tell you what they are. My favorite Irish tradition is you get the whole extended Irish family together and eat Italian food. So I did that. That's that's

that's one thing, spaghetti or something. Yeah. Yeah. The other thing is we tend to tell really long, rambling stories that really don't have much of a point um, but they have a lot of metaphors. So I'm gonna do that right now because I want to tell you a story about a good friend of mine. He was a photographer at the Associated Press for like thirty years. Like guy lived the life. He went to every Olympics, he

photographed like every NBA Championship. Anyway, now he's retired and he's on Long Beach Island and all he does all days take pictures of birds, regrets, and the herons and and all sorts of uh seabirds, um, and they're beautiful. It's like kept me saying, you're in the endemic. But recently he took a picture over the bay. It was sunset on Barnegat Bay, and on the other side of the bay they were doing a controlled burn of the

pine lands. So they were trying to burn down I guess a few acres in order to not have a bad forest fire in the pilots. And I thought, vil Donna, this is exactly what's the FED is doing right now? Controlled burn of the markets in order to avoid a major nasty, uh forest fire later on. What do you think about that? Pretty good for at least you warned us. But that is a really long winded way to get back to the FED. Yeah, yeah, it could have been

more long winded. I've been known to being more long winded, as you know. I heard, I heard, actually I think it was. A strategist wrote in a note a better sort of analogy. The FED is dating without the commitment, dating without the committing something like that. I like mine better, But that's fine. Ya, you go with here. It's good, it's fine. Think I have a kill. They're gonna pick minds better. Why I want to bring in Ben Emmons.

He's the managing director of Global macro Strategy at Medley Global. And we also have Edward Harrison, who's with Bloomberg's Markets team with us with us this week. So I want to welcome you both to the podcast. Thank you very much. And uh and I want to start with you because Ben's been on this show probably as many times as Rodney Dangerfield was on Johnny Carson, and uh, he gets a little bit more respect from US. But but about that many appearances, but this is your first time, so

welcome to the show. I wanted to just tell our listeners a little bit about yourself, how you ended up in Bloomberg and ed. You'll be happy to know we allow a little bit of book talking on this show. So so tell us about your new newsletter too. Yes, actually, that's that's good. And by the way, I vacation every summer on LBI, so I'm probably partial to you to your story about that because I go up to Barney It. I have a good friend who has a house up there,

and uh so good good story. Definitely beautiful part of the world too. By the way, Jersey gets a bad rap, but that is some of the most beautiful scenery over that ball in my opinion. So I came to Bloomberg through securitist route that started as I was a diplomat in the US Born Service. I left to go to business school, ended up in UH financial markets doing leverage finance and high yield in London. UH subsequently decided this was the Internet bubble. Why don't I get into the bubble?

Went to UH some technology companies as an M and a guy and Eventually I found my way uh into back into the markets uh via writing. UH. I was writing a blog which became a newsletter called Credit write Downs, which I did for thirteen years before I came the Bloomberg.

And so now I'm reanimating a newsletter called The Everything Risk and sort of the main gist of it is is that we have a very difficult macro situation in the developed economies that allows us to continuously be at risk from large uh financial large economic events and so uh, this this sort of semi crisis uh state that we're in is a result of the preconditions. UH. Much of

that has to do with debt and demographics. That's my uh, that's my book talking there and I have to uh two posts that I've done thus far, but many more to coom H. I love the name of the newsletter for for a paranoid worry work like me, The Everything Risk early hits home. That's a that's a good name.

And then to turn to you and to turn to this week, I was actually hoping you could sort of recap some of the takeaways from from Paul's conference this week, and I wanted to ask you why you think stocks ended up rallying so strongly after shortly after he started speaking, Yeah, sure, and again Feldana and Mike, it's great to be back. I think it is need my third or fourth time on the podcast. It's great to have this discussion. So you know yesterday that you could explain it one one

or the other way. So the fat delivers is fat. There's dark plot that looks pretty hockeys. Right. All these dots are movable a significant amount, but if you really drill into it, then you can see that they match the expectations from the market, at least for this and next year. And that's just how far the market wants to look out for policy, because whatever happens in twenty four,

who knows, right like it could be a recession. Who knows to spaying certain So I think that was one candalyst that the market said, Okay, this is a fat that's willing to step on the break, but not go much more beyond what we already have been pricing in about right, So there's a little reaction tending your yields on that announcement. I think there was just a slight difference between twenty three projection and when the market was at that moment, but by and large I think that

was I think the key catalysts. Now coming into the meeting, we had two other tillings behind us, in which I think was a very nicely put by a colleague, John Author's today of basically had three people throwing in the towel pow right. I guess on inflation, I could gotta fight it. But just the news out of China definitely played a role, because that's a that's a different story, but can have significant effect on markets, right because if if you're gaining, is a real support of Chinese equities

that spreads around the region. It's not just there, it's Hong Kong. She was significant, so that it's still over I think to the equity markets here as we went into that meeting, and then a lot of noise but cutting through it, Ukraine and Russia are moving lowly towards some sort of a cease fire at some points as

these conditions are negotiated. The ft with floating it. So I think it was all a combined catalysts taking it back to the fat um now creadly they want to step on the break this year in particularly to get that infatier rate. You now down to two percent by next year two and a half to to point seven. And the market seek incredibility in that, they say, and that was the reaction the law under you curve it would autherivize have sold off quite aggressively on the Harkeys dots.

It didn't because, as imagine they analyze this restrictive policy that maybe the feathers pursuing. Paul took that back and said, like, we're not reading in the business of restrictive policy. We want to get back to neutrals practically as we can. And how he said it that was too a soothing way of saying, we're taking steps. You may get to this neutral rate maybe student a half to seventy five what it is, and that's sufficient enough to get this

infatier rate over time back to two percent. I think all of that together that it is relief rally, which didn't continue today. But it was a notable movie, you know. Uh. But it's a great point about the China story sort of being an underlying story there for listeners who might

have missed that. I mean, I guess the big concern lately in China is that all these US listed uh Chinese companies would basically get kicked off of the exchanges for not uh complying with the auditing requirements that that the US wants, and China came out and said they're gonna make some concessions to allow that, and and there's a few other statements to to basically try to prop

up the market. That and as that Golden China Golden Dragon China Index up thirty percent, I think on the day the biggest game ever, unbelievable story and it's it's a you know, I think that is sort of something that that propped up sentiment, you know, despite the FED. Um, and I'm glad you brought that up. But but let's bring you in here. Um, any other takeaways from the FED for you? And one thing I'm I'm really curious

about is FED credibility. Um, they seem to have lost a lot of credibility regarding the notion of inflation being transitory. They basically come out and said, what's our bet, We're gonna take a mulligan on that. We we got that one wrong. And some of the rationality I I heard for the rally after the statement was that while they're expressing confidence that these rate hikes won't uh you know,

temp us into a recession. Um. But I'm wondering how much credibility they have left and whether you know, that might be a mistake by some people to to use that as a rationale to buy. Yeah, you know, I think that what Ben was saying about the relief rally there at the end makes a lot of sense to me that, uh, there was a certain relief that uh the news is behind this. Uh, stocks world were sold. Uh so people they bought in. And now we can see how much, how much, how many legs the relief rally,

how as how long this relief rally lasts. I look at this last move is sort of a regime shift. Uh. It's a regime shift basically because we're moving from the forward guidance game, uh to actual rate cuts or rate hikes, because that's the Fed's main policy tool. When rates or zero, they don't have any rate cuts or rate hikes that they can they don't have any rate cuts they can use, so they have to use forward guidance. But now that we're getting off the zero lower bound, we're moving to

a different regime. And so the question for the FED was, as we moved to this regime. How much can credibility can we have in terms of meeting market expectations. I think it was interesting that Ben talked about the FED being banged on expectations, uh for what the market is looking for. They basically capitulated because if you looked at the dot plot from December two one, uh to the one that just came out, and think about the messaging in between, this is a lot more hawkish than they

were speaking uh two weeks ago. So they basically have said, we're shifting from the Ford guidance game to rate hikes, and we're gonna do that by taking on the market position. We're capitulating our previous position. We're you know, waving the white flag telling everyone that we got it wrong, and we're going to take on the market position. And so the reset is now for for that. And you know

I wrote about this actually a month ago. UH. Greenspan back in two thousand and three, he was concerned about the FED running out of bullets during that particular recession. And what he said is is is that he was talking to then Kansas City FED President Thomas Hoenig, and he said, be as non specific as you know how to be that was his guidance to him, and Ben Bernanki got in there and he interceded. He said, you know what, no, don't do that. Ambiguity had This is

his quote exact quote. Ambiguity has its uses, but mostly in non cooperative games like poker. Monetary policy is a cooperative game. The whole point is to get financial markets on our side and for them to do some of

our workforce. So that's what the FEDS doing. They're saying, you did all the work to get to the seven, we're moving to your position and as a result, now the proof is in the pudding in terms of whether we uh, you know, move to the position that you see and that's the best possible outcome that you could

get for fed that was behind the curve and losing credibility. Yeah, And to me, and it reminds me when I was a kid and I'd get in trouble with my parents and they'd say, you're we're gonna ground you for the next year, and then they'd kind of softened up in

a week or two. And so I wonder if that's part of it, is kind of you know, trying to influence behavior with with uh, you know, this really hawkish dot plot, whereas you know, those dots can always move down again later year if if inflation does sort of behave better than than what everyone's but then what it's doing now anyways, that you think that's part? Is there a little bit of a psychology game going on? Do you think I just feel that they have They're very

concerned about, uh, disappointing the market. Uh. They want to be as transparent as possible. They tried their best to talk down the market from seven rate hikes. You know, people were upp in the anti from seven to eight to nine consecutive rate hikes, and they weren't able to do that, and so, uh, they had a decision to make when we come out, are we going to move to this new regime of rate hikes from Ford guidance with the market and and ourselves, um, not on the

same page. The last time they did this in two thousand and eighteen, they were telling the market, look, we're gonna hike uh two times, We're gonna hike three times. The market didn't believe them. The market was and we're gonna hike. They're gonna hike two times, and they ended up hiking four and it was that fourth hike in December of two eighteen that caused the markets to just go bananas. So I think that that's what they want

to avoid. They want to you know, give it to the market on a platter, say we're meeting your expectations, and then we can use forward guidance at the the you know, um, at the margin to sort of you know, get people to dial up or down bit depending upon the economic circumstances at the time. And I want to ask you too, maybe add on to that, and also

a weigh in on the recession talk. We keep hearing about recession talk, and I wanted to ask you what you make of that idea that potentially the US could see a recession and then maybe possibly as soon as later this year or early next year. Is that likely to materialize? Yeah, I hope not. But it's something that's has really creeped into the market's narrative increasingly. Of course, everybody's zero into on the on the you curve, there

are inversions appearing. If you actually look at the three monten year curve, which is what most of these recession models are based upon, that's still very steep curve. But if you discounted a year from now forward. It's it's inverted. So there's definitely expectation that we're going to hit the Ukraine version, and it has been the best predictor of

future recessions. So it seems like that the bomb market is looking at this is a recession that may happen by twenty four or about something in that nature, which may also explain why there are rate cuts sort of price starting in that year. And by the way, on the on the vet Stop plot, there's one member that actually put in a rate cut in that plot for twenty four, right, so just keep that in mind to

the recession talk is here. Paul of course was pushing back on that, not pushing hard like like aggressive, but basically dismissing the idea that they are the economy is way too strong. It's not, which was by the way, another reason why perhaps of markets were up like it's with Voto conference on the economy is always a really positive impact on markets, especially if the fact comes out with that sort of language. Even if their models are on,

it's an important psychological factor. So do that point BacT if we're going to continue to talk about it. We know from years ago, we're going to end up with talking ourselves into this recession. People were back. Risk is taken down, savings are off, and people are careful, right,

and that's something that we have to monitor. Now. Look at the shocks that we just went through with Ukraine, especially two weeks ago, is enormous if you believe on on on how global and global skill that is taking place because of oh, wheat exports for example come out of that Bombus region as well as in the Odessa region, So it all comes through the force and all the size of the of Ukraine that in itself can have

a huge effect on global economy. Right. There's of food either shortages or or sky marketing food prices that is going to impact lower incomes and that's here happening here too. And now it has to be method monetary tightening. And that combination has been historically time and time again and not a predictor of recession um and the last year I guess is that that if you watch carefully with credit markets are doing, I've always found out a good

leading indicator. So far, we haven't had the structures that we had say five years ago, through energy markets into the high market and spilling over the credit um. But it is to be watched there too because you know, the trading houses in modies are are really constraint in liquidity currently cannot get any access of credit. So there's something of a spill over going on that may become bigger.

And as that is the case if credit really starts to like be pulled back, and there was some talk about it that companies would challenged with with issuing bonds in a certain period when the market got temporary volatile because the Ukraine that just leads to the disruption and I could lead them to again pairing back of activity

and lead us to down to that path. So I think if I to take those three the you curve, you know the fact that food press and and and multi policy tightening, combined with signs some science and credit, it points to that at least going to face a significant slowdown of the economy, that's for sure. I think that's almost a given. Now we would not be to be authorized with equities here already correcting about twelve that would have been last it we've been taken back much.

I think the rally is the last point yesterday was was that Relieve rally on all the uncertainties that came sort of to get over taken out briefly. But I was not about, oh, Will the economy is actually a good shape. We had mis calculate it is therefore rally so I think the market is worried that there is a risk of procession on the horizon. Yeah, it's a

it's an interesting point about credit. I mean, I feel like the last time everyone freaked out about credit spreads was when oil prices were so low that all that junk energy debt was under pressure. Now you've got sort of the opposite idea. And I wonder, you know, I wonder if credit isn't maybe the signal uh as powerful of the signal as as it was in previous time. But I wanted to pick both of your brains about

the notion of inflation right now. Um to me, I was never, you know, quite convinced that everyone was wrong about transitory inflation. I just thought at the length of of how long the transitory period was was off and and but by the the whole paradigm is shifted now with Will doing what it's doing, uh, China locking down some factories again, you know, fouling up supply chains again. But I'm curious how you both are thinking about inflation.

Have we sort of progressed away from the supply chains uh and and sort of that big rebound and demand being the main drivers of inflation. Are we more now? And sort of the scary lingering effects of inflation with wages going up and that forcing uh costs to go up, you know, and and that cycle sort of feeding onto itself. Uh, sort of that that labor push inflation. And how are

you thinking about it? Are are we in sort of as the inflation genie kind of out of the bottle now and you can't really put it back, um, regardless of whether we normalize supply chains and everything else. Yeah, I think we're definitely in a different mode right now than we were. We're not in the so called secular stagnation mode. Even Larry Summers, who's the guy who coined

that phrase, would say that. And going back to Ben's comments just from before, that's one of the reasons that you see the numbers ticking up in terms of the FED model. You know, the New York Fed has a probability of US recession uh predicted by the Treasury spread, the one that Ben was talking about the three months of the ten year, and if you look at how that works out, we're right now at sort of two

thousand eighteen levels. That's when the FED was forced to pivot. Uh. The numbers that you were talking about back during the shale oil days were slightly lower, but they were still concerning. That was still a concerning market. But the reason that it's like that is is there's a residual leaf that the FED may not need the seven may not be enough, and we they may have to accelerate. So the market is positioned as it is now with a rate hike

at every meeting. But potentially, if we're in a new regime, as I think that we potentially are, uh, we could move to fifty basis points at any meeting. Every meeting is live, and every meetings live for or even fifty basis points from here on out. And why is it that we would be in that regime? I think it

has to do with changing preferences. You know, there's the d globalization and there's also the sense that we this has gone on long enough that people they need to stock up on certain things and they have their preferences shift in terms of what they're willing to to stock up on as a result of what's happening, So that

will continue the inflation genie rolling. And when that happens long enough, people they say, time out, we need to get a pay raise, we need more money, and then you get that sort of uh, that that spiral that you were talking about, Michael. So I think that we're there, and I I believe that the market is, the bond market is much more on edge about that being a

problem than the equity market. And that's reflected in the very low spreads that we have between uh say, the three month and the ten year, not as much, but more so the two year and the ten year or the seven year in the tenure which is now inverted. Yeah,

for both you. I wonder is you know, with all these other drivers of inflation besides low interest rates, is there a chance that you know, aggressive interest rate increases won't even solve the problem, or if they do, it's you know, the medicine will you're worse than the cure and we'll have a real the growth as a result.

What do you think about that? Then? Yeah, it tends to play out the way Mike, that you have to then become really restrictive, as they say the wonkish term, but that's kind of the way to think about it. The funds ory goes far beyond where it may be neutral. And that's a bit elusive concept, but okay, let's go

with it. Right that that neutral is something like to point forward to put five is its been putting out that you're you're too restrictive, and then you really you know, first of all, in the US, it will be particularly through credit. That's always how the US economy gets into that recession. If you start stiffening kzoomer credit company credit, things really slow down fast. That's what actually happened with the shutdown two years ago, right there was shutting down

the economy at that an amplified effect on credit. We were immediately in a recession almost on the day that we shut down the economy. So we're now in slow grind towards that, I think, And and yeah, the point is how many rate hags are we necessary in order

to get this inflation right down? Now? There's one advantage that the FAT has over other central banks in that regard, and that's the dollar, Because if you were the high rates such that you're getting a further surge in the dollar coll it that way, and let's take a look at episodes and as a as a good example of that, right when we went from fifteen up to almost the dollar or something like that. But the impact that will have on commodity prices globally, that could be a way

of how the FAT can better control inflation. It doesn't even have to say strong dollar policy, but just by the nature of hiking rates that would boost the dollar, particularly against geeta and currencies. Because if you think of the other example that's playing out live is in Brazil. Now they're a center back. There has been aggressive same in Chili. Right they have taken they were much comprehemptive.

Their stock markets this year are up by right then something that looked last time, and that is because the inflation rate are topping out. Its still have very elevated. But their style of multi policy is not something that we easily would do here. Much as these dog propers hockeys as you look like, it's nothing compared to what the Brazilian Central Bank is doing. You know, it's take hunt hund fifty basement hikes. Now, there's no way that

we're gonna get that here. But if if the fact we're to move with the hunt on fifty base points in a short order, you know, by by June or so, we're up hundred fifty base points and in with the fat funds rate, the dollar would meaningful take off, I think, and that would be impactful maybe when on the last point on inflation as it gets more entrenched embedded. You know, if you follow the Michigan survey, you read the texts

day since last year. Some in the spring of last year, they were inflation psychology started appear a number of times, and I think they got this from surveys. This is the seventies idea, right, If people got affected by inflation and started making decisions about their purchases and they slower down what it's not holding things or getting ahead of the ahead of the curve, you will, right, because they're

worried about prices going up even further. So that's something to keep in mind because consumers thinking that way, it's obviously having effect on inflation long term. Because if you look at the consumer projection for inflation from the Conference Board since May, that one of your projection has been over six percent. That's been dead on where we ended up with inflation. You know, it's been one of the

best predictors this time around this case. So watch those because I think if those do not come off right, and that's seems to be the case both Michigan and Conference Board one year expectations is not not stay very elevated, and the Ukraine situation leads to further shock and energy, which is very possible because of extremely tight conditions in the physical markets, then then that could have further effect on inflation long term. So that's something to think of.

And I'd add on to that that uh, on top of that, you know, we should think about how did the interest rates affect the economy over the short term then versus the long term. Uh, it's just like with inflation,

there's a short term effect. But we're now going back to Michael's question, we're getting into people changing their behavior and if transitory at lasts long enough, even though it's it's support, the the effects are are the the shock is transitory, the impact on people's behavior is non transitory. I would say you could see the same sort of thing in terms of when Ben talks about the FED having to jam it on. Actually when the FED first

hikes rates. Companies want to lock in their their their debt, you get more expansion of credit. People they want to lock in their mortgage, so you get more activity in mortgages. You get higher uh income to the private sector, because the private sector is a net receiver of interest. So actually the initial phases are one where there's a certain impulse that is pro cyclical. Uh. The FED is actually adding in certain realms to uh, you know, to stimulus, and so they really have to jam it on in

order to overcome that impact. And that's when the credit starts to deteriorate. People get locked out of credit markets, and the whole thing starts to fall apart. And that's why it's so difficult for the FED to thread that needle. What we're hoping is is that just like in the shale oil phase when Janet Yelling just stopped for a whole year, that the FED can wake up, look at the signs, see the tension, and then stop and by

doing so, uh, save the economy. But there's a lot of worry, including my own worry, that they won't be able to do that. Maybe on that quick on that point that is that you know, you have to think now that the under the faith framework, right, the flexible average inflation target in FLAME framework. You know that that could be on one hand that they could do that. They could pivot faster from from as they did pre faith in twenty nineteen. They pivot it from time into easing.

This may happen again to right. If you get this hikes frontloadus, we get backloaded rate cuts based on that faith framework. They switched quickly. But there is it time like here, like you have to as you say, you have to get ahead of it. Now they're put out this projection of seven hikes for this year, matching market expectation, but you have to you really do have to follow too.

I think on trying to get this inflation rates stabilized that even though it will stay higher than when it was before and and for that's going to affect the economy, then based on faith, you could switch to easing in the future maybe quicker um. But we're not there. Yeah. I think this is the discussion of the recession scenario. Right.

If the action of seven hikes gets inflation under control and the economy stage relatively stable with employment not too much effective, then maybe you're going to continue on a rate path high path. If not, then faiths will dictate that you should twitch the easy Yeah. And I would say the fet IS is definitely not front loaded in the way that we want them to be. I mean, if you think about what's happened over the last two

months since the January meeting. The January meeting, they came out and they were basically saying our summary of economic objections in December, we're moving away from that and we're gonna be more hawkish. Then the market exploded to the seven, eight and nine times. People started talking about fifty basis points. Actually I was one of the first people to start talking about that, and the FETSI hang on way a minute, that's way too aggressive for us. And they started to

dial it back, and then market expectations dialed back. Uh, and it get to the point where the expectation was for bases points and Power pretty much said that when he talked to Congress. So that's not frontloaded. So the FED talk the markets into accepting a non frontloaded policy, And to me, that means that the risk is for inflation to continue to be elevated and that the FED is going to have to jam it on belatedly, and

that is where the recession risk comes into play. Then I want to ask you just to sort of help wrap things up a bit. I wanted to ask you what sort of factors are signs you're looking for for bottoming for the market. One particular idea I'm interested in is this idea that institutions have been doing a lot of the selling over the last couple of weeks. Retail investors have been buying, but the institutional selling is just

overwhelmeding that retail bid. If we do see institutional selling sort of exhaust itself, could that sort of sort of

help us stabilize a bit more. It could be. I mean, it's it's a it's an interesting uh the economy because party the retail flows are driven by the institutions investing that on their behalf and stock funds right on the other hand, is individuals that that take risk because of yead to believe that the economy is so boosted that from the pandemic it's not going to end in a recession.

There's still a lot of hope, there's still a lot of I think by the deep mentality perhaps out there among those investors in particular and it's as long as the feat is not yet on on the course of this bounce sheet reduction, which we didn't talk much about here. But if they they're gonna do that, they're gonna have a plan. They're gonna make that aware of it at

a meeting, which probably isn't May. But if there's a psychology about that too, right, people view the balance sheet of the fat and the stock market very linked to one another. If it goes up, the stock market goes up, and vice versa. So let us play a bit of a role here too, because if if that, if the fat gets aggressive, they're also as as in adding on to get ahead of the curves, as at was explaining, then I think the bottoming is going to be challenged.

You know, there's there's a lot of I think still psychology, painful psychology left from twenty eighteen on that. On that part, you know, it was clear that reserves in the system were hoarded and the situation got too tight too quick by doing both balance reductions and fat and fat funds red hikes. So so I think this bottom is a bit elusive at this moment um. In addition to that, we we do deal with a geopolitical uncertainty that that

does have quite unknown outcomes, including what you're seeing today. Right, these these headlines remain threatening, so we have to see that. So, I I think gets a bit of a playoff on the one hands, hope that the bid the dip is here, or people willing to do it. They think it's just over now. Right, let's let's do this because it's going to be just the same kind of major rallies before. But let's not forget that the psychology of the first bouncy and the and the and the stock market are

it's actually very strong. So I wonder if the retail traders at some point also there take notice of that and say, you know what, this is maybe not so much of a bid to dip here at this moment. As we go from here, one more quick one before we get to the crazy things. I'm always thinking of our listeners who are like, listen, just get these guys to tell me what to do with my money already, you know, so here we got an aggressive FED and aggressive Russia. Uh lockdowns in China. I mean, what do

you do in this scenario? Is it just to go to cash wait for the dust to settle type of scenario or quickly what would you guys do? And I know everyone's risk tolerance is different and retirement horizon is different. So let's just pretend our listener is, oh, I don't know, a a cranky uh fifty something, your old guy in New Jersey with three kids head in to college and he's he's not the most risk tolerant kind in the world.

Where would you tell him? Well, you know, I would definitely say that you're you do want to raise a bit of cash to be able to redeploy it. You know, there's a stealth bear market that's going on right now. You know, even though the overall markets down ten percent, if you look beneath the surface, there's a lot of pain that's that's been had. I'm looking at some of

the stocks on my screen right now. Uh, you have told Brothers down thirty two of from the fifty two week high, Lenar's down, Home, Deposts down, fed X is down, Starbucks is down. Uh you know, so Ford is down. So these are you know, real companies that make real products, and you have to ask yourself how much further down can they go? Uh? It's not about by the dip. It's about understanding the dynamics of the market and and

also the real economy. At some point, these companies are going to be a buy uh both you know, from evaluation perspective, but also just from a liquidity perspective. And so I think that you you want to hold more cash to be able to leverage into those real companies when when the when the market turns, stick with the quality and not the uh, not the innovators and disruptors of the world. I guess, well, you know that's a bit more of a crap shoot. I have another list

of companies. Uh there Uh you know Robin Hoods down eight. Uh. You have like Beyond Meat is down seventy three. Uh. You know, I don't think that. I mean they could go to ninety, they could go to a hundred. You never know. Uh, but are they coming back? And how quickly are they coming back? Pilot has got to eat more of those veggie burgers, I think, Mike, you know, I've never been a fan of holding cash. I've always been more about staying invested and now and as you know,

I would have work a major investments firm. There was a strict discipline on on how much cash you should hold. And obviously there was for a quickly reason because clients could withdraw the money, but it was also about like, yes, cashes can be very stabilizing, infecting your portfolio if you

go into a being of significant volatility. So when the invasion happened on February twenty four and you had a lot of cash from February twenty four through say the first week of March, that probably would have helped you a bit with that volatility move, but then it didn't. Right, we had actually we have the best week closing week probably coming in for the S and P since I think a number of months now. So it just tell you, like you you you don't want to be and let's

say sort of levels of cash. I think that that would be really dragging on on your room run return that you try to achieve for retirement. But you know that you want to be optimistic with the cash that you have. That that's always a good idea. Um. You know, cashes is simply a volted an accid with zero volatility. It cannot really be autorized valued, right It's it doesn't have any discount factor nothing. But it is also something about pure optimism. Right, if you have too much cash,

you're going to deploy it. This probably happened yesterday too. There were probably people on the sidelines looking, this is maybe a moment to do this right, And so I think you're gonna think about in that context as opposed to using cashes and acid that people something say, because it isn't unless you put that cash into a treasury bill, right,

that's shadd cash equivalent. Sure, but that, as we now know, that could lose value too, especially in this scenario of a federal reserve hyaking rage vality, Will will, We'll go down. Good stuff, guys, good stuff. But now it's time for the crazy stuff. I gotta say, then get us started.

What's the craziest thing you saw this week? Well, something I'm really interested in is this idea that crypto could potentially be used to skirt sanctions, which there's a lot of animals out there saying it's that's it's not really, that's not really the case. But we had a story

from one of our colleagues all got care of. She wrote about a crypto forensics firm potentially having found a wallet with millions of dollars worth of crypto in it and it might be linked to sanctioned individuals and and oligarchs. And the company is called Elliptic, and they've only passed the information onto the government. And uh, he was telling us, he was telling Bloomberg News that crypto can be used to skirt sanctions. So to me, that was really interesting.

That's that's pretty good, Bennet, was that your wallet? Uh? And the crazy thing I thought that, well, you know I watched Jim Cramer often on at night. You know, you've never heard of him bad, never heard of him. I know, I gotta mention this one because I thought this was crazy. So he is a bull, right if we know, checking a ball. I was like his enthusiasm.

But what he said was this, he said, like and to an earlier question how the market will bottom, he said, look, everybody, I mean, everybody on the bus, on the train, in the stateium, wherever you are, just everybody has to think barish about the market. Everybody's barish, everybody's selling. Then the barcketbile bottom. That's what he said. I thought that was crazy that. You know, that's one not going to happen to you know that that's that's already mentality doesn't exist.

So that was pretty crazy. All right, that was a pretty good cramer. You don't see Ben moving the hands. It's the hands that did it for me. I uh, I can almost see the sweat stains forming on your shirt there. How about your add what's the craziest thing you saw this week? Well, you know, I was gonna I was telling you, Mike, I was thinking about oil

because it went up and down. But now that everyone's talking about anecdotes, my anecdote is the craziest thing I saw was a movie theater company buying a golden mining company. And the gold mining company doesn't even mine gold. For me, that is absolutely bonkers. And you know, I'm talking about a MC's acquisition. And just so you know, the gold mining company went public via a spack of course it did.

If that's not crazy stuff, I don't know what it And you know what, what's such thing to me about that is it really was only a twenty eight million dollar investment. But the the amount of media that MC gets, the arned media you get for for doing that, you get all the apes back back on board with the stock. Maybe maybe it's worth that twenty million. I don't know. I don't know. Um, all right, you're you're crazy. Things were all great. I'll give you the winning crazy thing now,

which is which is mine? Of course? Uh? Courtesy of and it pains me that mine always wins, filled Onna, But I mean I have to be objective about this and and and be honest. Yeah, it's not crazy how that always happens? Courtesy of the New York Post, which is we all know is the crazy Things paper of record.

Elon Musk, you've heard of him, right, The world's richest man challenged Russian President Vladimir Putin to quote single combat amid the war in Ukraine, prompting the Kremlin official to fire back at the Tesla boss, calling him a quote weakling and a little devil. So must tweeted, I hereby challenge Vladimir Putin to a single combat. Steaks are Ukraine and the words Vladimir Putin and Ukraine were written in

cyrillic letters used both in Russian and Ukrainian. Uh. And then he tagged Putin's official count saying do you agree to this fight? I'm not sure what single combat is. I guess I don't know. If you bring pitchforks and and uh long swords or something. But the question is ed, who are you backing in this fight? That is a good question. Who do I have back in single combat? You know, I'm gonna I'm gonna give it to Elon on this one because he's a younger guy. I think

he has a little stealth to him. I'm gonna I'm gonna go with Elon, all right. You know, Putin is not judo master, but I'm not sure how serious the competition has been. When you see those videos of him uh uh knocking guys over. Definitely the craziest thing I saw this week. Ben Emmons ed Harrison. Great to have you both on the show. Really important week, and we really appreciate being able to pick your brains and I hope we can have you both back again soon. It

was a delight. I really enjoyed it. Thanks, Michael, Donna would be great to be Becky, thanks for joining us. What goes up? We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and app or wherever you get your podcast. We love it if you took the time to rate and review the show on Apple Podcasts. So more listeners can find us and you can find us on Twitter, follow me at Reaganonymous.

Bolbonna Hierrich is at Bolbanna Hirich. You can also follow Bloomberg Podcasts at podcasts and thank you to Charlie petto Bloomberg Radio. What Goes Up is produced by Magnus Hendrickson. The Head of Bloomberg podcast is Francesco Levy. Thanks for listening, See you next time. M