This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App if you're part of Global Wall Street. Arguably this is the conversation of the day. Kata Kaminsky and the titles boring Chief Research Strategist at Elphas Simplex, but far more importantly out of the Andrew Low Combine in MIT Boston is trend based. She and her shop follow trends in the probability of coming out of a range into some trend across all assets, like nobody on the street. Katie Minsky to briefist this morning, Katie, I'm gonna be honest here. You correlate across some bonds, economics and all that over to equity markets where you are more than tentative. Tell us about the repricing that we could see in the equity markets.

This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App if you're part of Global Wall Street. Arguably this is the conversation of the day. Kata Kaminsky and the titles boring Chief Research Strategist at Elphas Simplex, but far more importantly out of the Andrew Low Combine in MIT Boston is trend based. She and her shop follow trends in the probability of coming out of a range into some trend across all assets, like nobody on the street. Katie Minsky to briefist this morning, Katie, I'm gonna be honest here. You correlate across some bonds, economics and all that over to equity markets where you are more than tentative. Tell us about the repricing that we could see in the equity markets.

Good point. Okay, So this year, what we've really seen is that the equity market has been disjointed from the fixed income market. So it's been blissfully going along, relatively positively, ignoring the fact that there might be some issues and we might need to have higher rates for longer. We feel like last week we finally saw a point of recognition. We saw a breakout in the fixed income market where we saw yields higher significantly on the long end. What this means is the market has really finally said, wait a minute, these upside risks are real, like higher energy praises.

Good point. Okay, So this year, what we've really seen is that the equity market has been disjointed from the fixed income market. So it's been blissfully going along, relatively positively, ignoring the fact that there might be some issues and we might need to have higher rates for longer. We feel like last week we finally saw a point of recognition. We saw a breakout in the fixed income market where we saw yields higher significantly on the long end. What this means is the market has really finally said, wait a minute, these upside risks are real, like higher energy praises.

That's a challenge.

That's a challenge.

I mean, these things have to be solved for the equity market to waiver through this.

I mean, these things have to be solved for the equity market to waiver through this.

And now we go over the prosphere to tread Wells Wilder nineteen with Katie Coominski. Katie cut to the chase. There's a green equity feel of up up, up and a red down down down from Wells Wilder called ADX DMI. It's a toxic soup of calculus as well. What are you learning right now from a broader S and P or NASDAQ one hundred ADX DMI available only on the Bloomberg terminal.

And now we go over the prosphere to tread Wells Wilder nineteen with Katie Coominski. Katie cut to the chase. There's a green equity feel of up up, up and a red down down down from Wells Wilder called ADX DMI. It's a toxic soup of calculus as well. What are you learning right now from a broader S and P or NASDAQ one hundred ADX DMI available only on the Bloomberg terminal.

Well, if you look at most of the technical signals right now, they all are pretty consistent. The equity has been relatively positive, but a little more tentative recently. But if you look at fixed income, I mean, let's be honest, fixed income is actually set to have two years in a row of negative returns, and fixed income signals have been consistently short for months and working well, particularly this month. We've seen energy breaking out more recently, and then we've seen in the currency basket we've seen the dollar trade also being one of the stronger ones in the last two months. So really seeing last year repeating itself.

Well, if you look at most of the technical signals right now, they all are pretty consistent. The equity has been relatively positive, but a little more tentative recently. But if you look at fixed income, I mean, let's be honest, fixed income is actually set to have two years in a row of negative returns, and fixed income signals have been consistently short for months and working well, particularly this month. We've seen energy breaking out more recently, and then we've seen in the currency basket we've seen the dollar trade also being one of the stronger ones in the last two months. So really seeing last year repeating itself.

So is that what you're leaning in too well? I mean, that's my question is are you basically doubling down on your bond bar thesis and doubling down also on oil prices going higher, or are you seeing this starting to reach a top, a topping point that makes you pull back.

So is that what you're leaning in too well? I mean, that's my question is are you basically doubling down on your bond bar thesis and doubling down also on oil prices going higher, or are you seeing this starting to reach a top, a topping point that makes you pull back.

This is a good question, Litza, because we're not really in the business of picking tops and bottoms. But what we are doing is following where market themes are moving and what people are actually doing, and what people have been doing all year. Which has confused me is sol bonds but said that they like them so it's really sort of this weird dichotomy. And so what we're seeing as well as we're seeing continued acceleration in the bond market on the short side, not more than before, So I wouldn't say that we're seeing more short positions. We're just seeing a consistent view. Although we've seen somewhat of a bottom at the short end of the curve. So remember in earlier this year we saw the short end of the curve bottom to some degree, we've been looking for more of a bottom on the long end of the curve. So when are long term rates going to sell off or long term bonds And that's exact that we saw last week, and that was our point of recognition where the market said, wait a minute, you're right, maybe we have to be higher for longer and we need to disinvert the curve. And that's finally starting to happen.

This is a good question, Litza, because we're not really in the business of picking tops and bottoms. But what we are doing is following where market themes are moving and what people are actually doing, and what people have been doing all year. Which has confused me is sol bonds but said that they like them so it's really sort of this weird dichotomy. And so what we're seeing as well as we're seeing continued acceleration in the bond market on the short side, not more than before, So I wouldn't say that we're seeing more short positions. We're just seeing a consistent view. Although we've seen somewhat of a bottom at the short end of the curve. So remember in earlier this year we saw the short end of the curve bottom to some degree, we've been looking for more of a bottom on the long end of the curve. So when are long term rates going to sell off or long term bonds And that's exact that we saw last week, and that was our point of recognition where the market said, wait a minute, you're right, maybe we have to be higher for longer and we need to disinvert the curve. And that's finally starting to happen.

Katie.

Katie.

I was struck by maybe people capitulate just ahead of the market actually turning their way or the economy turning their way. And it feels like a market that wants to inflict the most pain on the greatest number of people as markets are wont to do. It feels like things are turning on the edges in ways that might challenge the pond very thesis and how high yields can go. So is this a point where you start to reassess this is the capitulation moment where things can start to normalize in a more significant way. How much are you leaning into that?

I was struck by maybe people capitulate just ahead of the market actually turning their way or the economy turning their way. And it feels like a market that wants to inflict the most pain on the greatest number of people as markets are wont to do. It feels like things are turning on the edges in ways that might challenge the pond very thesis and how high yields can go. So is this a point where you start to reassess this is the capitulation moment where things can start to normalize in a more significant way. How much are you leaning into that?

So what's interesting is we did a study last year. We study the short bond trade and empirically, if you look over different cycles of the markets during inverted yield curves, trend signals tend to work very well being short fixed income. During a flatter yield curve, it becomes more mixed, and as we see a steeper yield curve, then we tend to lean more into longer positions. So that's something we've been kind of monitoring and thinking about over the last year, is this concept of we need to find that inflection point. And since we now have a much flatter you'll look at that tenure today, it's close to four or five. That's pretty flat, and so as we see that flattening and disinversion, it means that we're going to see more of that inflection point closer to the bottom of the bond market.

So what's interesting is we did a study last year. We study the short bond trade and empirically, if you look over different cycles of the markets during inverted yield curves, trend signals tend to work very well being short fixed income. During a flatter yield curve, it becomes more mixed, and as we see a steeper yield curve, then we tend to lean more into longer positions. So that's something we've been kind of monitoring and thinking about over the last year, is this concept of we need to find that inflection point. And since we now have a much flatter you'll look at that tenure today, it's close to four or five. That's pretty flat, and so as we see that flattening and disinversion, it means that we're going to see more of that inflection point closer to the bottom of the bond market.

Well, you just heard there, folks, as gospel from Katie community. I can't say enough about disinversion and the point of a tip point, if you will, an emotional point to pick up on that, Katie. I'm looking at the Bloomberg Total Return Treasury Index. You know we're back to twenty sixteen pricing. You mentioned two years of negative return in the bond market. For the pros out there on bills, on notes, on bonds, do they have gamma like equities? Is there an emotion there where if we break through certain support levels on price go lower in price hiring year, that you get so called gamma or the emotion.

Well, you just heard there, folks, as gospel from Katie community. I can't say enough about disinversion and the point of a tip point, if you will, an emotional point to pick up on that, Katie. I'm looking at the Bloomberg Total Return Treasury Index. You know we're back to twenty sixteen pricing. You mentioned two years of negative return in the bond market. For the pros out there on bills, on notes, on bonds, do they have gamma like equities? Is there an emotion there where if we break through certain support levels on price go lower in price hiring year, that you get so called gamma or the emotion.

Get me out, Yeah, I think. I mean that's part of what we've seen recently is at a certain point you have that aha moment. We have that in short term bonds earlier this year when people realize so people can focus on the shorter end of the curve. But I think right now you're hitting that moment where people are saying, if inflation is higher for longer, longer term cash flows will be exposed more to that particular pressure. And even if we have higher yields yield you know, higher real yields plus inflation is a nominal rates, So we have to have higher nominal rates until we deal with the problems. And the problems are higher oil prices, inflation not going down. It's dealing with supply chain issues and other things that we just didn't have in a low interstate world a.

Get me out, Yeah, I think. I mean that's part of what we've seen recently is at a certain point you have that aha moment. We have that in short term bonds earlier this year when people realize so people can focus on the shorter end of the curve. But I think right now you're hitting that moment where people are saying, if inflation is higher for longer, longer term cash flows will be exposed more to that particular pressure. And even if we have higher yields yield you know, higher real yields plus inflation is a nominal rates, So we have to have higher nominal rates until we deal with the problems. And the problems are higher oil prices, inflation not going down. It's dealing with supply chain issues and other things that we just didn't have in a low interstate world a.

Clinic, Katie, thank you so much. Four point four to ninety percent right now in the ten year yield. She was quoting Katherine communscate with Elpha simplex. Earl Davis joins us to bounce off what Katherin Kaminski just said. Earl, you say priced down, yield up. You have a greater conviction on that than the last time we talked.

Clinic, Katie, thank you so much. Four point four to ninety percent right now in the ten year yield. She was quoting Katherine communscate with Elpha simplex. Earl Davis joins us to bounce off what Katherin Kaminski just said. Earl, you say priced down, yield up. You have a greater conviction on that than the last time we talked.

So here's the interesting thing. The answer is definitely yes. This is unfolding largely as we saw it, and we still see, you know what, significant room for our sell off on ten to thirty year bonds, you know, possibly fifty to seventy five basis points higher before the end of the year on ten to thirty year bonds. Having said that, we do see that as a buying opportunity. You know, Friday, we actually reduced our short positions slightly, not by buying nominal bonds, interestingly, by buying tips. We do see tremendous value in the tip market at a two to twenty real yield. Not to say it can't get cheaper, which we believe it will, but that's where we're looking to buy when we're reducing our short position.

So here's the interesting thing. The answer is definitely yes. This is unfolding largely as we saw it, and we still see, you know what, significant room for our sell off on ten to thirty year bonds, you know, possibly fifty to seventy five basis points higher before the end of the year on ten to thirty year bonds. Having said that, we do see that as a buying opportunity. You know, Friday, we actually reduced our short positions slightly, not by buying nominal bonds, interestingly, by buying tips. We do see tremendous value in the tip market at a two to twenty real yield. Not to say it can't get cheaper, which we believe it will, but that's where we're looking to buy when we're reducing our short position.

Well, two questions, one, very short. Where does the ten year real yield? Where can that frame out from a two twenty? Does that have scope and scale team sweens out to twenty two to twenty five or can it really jump out?

Well, two questions, one, very short. Where does the ten year real yield? Where can that frame out from a two twenty? Does that have scope and scale team sweens out to twenty two to twenty five or can it really jump out?

It could really jump out to two fifty to three percent of that three percent in two thousand and eight, And let me explain the reason why. When the real yields goes up, investors obviously get a real return. And with the economy being so resilient and still being strong, you know solid, as the Fed said, what they have to do is take dollars out of the growth economy, put it in the savings economy, and you do that by having a higher real rate to attract more buyers. So we can see it going above two fifty We think possibly possibly three percent, very top end.

It could really jump out to two fifty to three percent of that three percent in two thousand and eight, And let me explain the reason why. When the real yields goes up, investors obviously get a real return. And with the economy being so resilient and still being strong, you know solid, as the Fed said, what they have to do is take dollars out of the growth economy, put it in the savings economy, and you do that by having a higher real rate to attract more buyers. So we can see it going above two fifty We think possibly possibly three percent, very top end.

Don't stop to show your folks, this is so important. You've got Katie Kaminski and Earl Davis pushing against the broad consensus looking for lower price, higher yield. This is a global Wall Street issue right now, Earl Davis. That comes down to the gamma that we see, this instability, the the convexity almost that we see in equities. If we get a Davis bond pricing to things unraveled, did we get to an instability? Do we get the greater gamma?

Don't stop to show your folks, this is so important. You've got Katie Kaminski and Earl Davis pushing against the broad consensus looking for lower price, higher yield. This is a global Wall Street issue right now, Earl Davis. That comes down to the gamma that we see, this instability, the the convexity almost that we see in equities. If we get a Davis bond pricing to things unraveled, did we get to an instability? Do we get the greater gamma?

So the answer is yes, but for a very short period. We believe twenty twenty four to market, the economy will still do all right. So we do like credit, We do like risk assets, not at these valuations. So we do believe we unravel because you have to reprice for the higher discount rate. Once it does unravel, we will be buying, We will be going overweight. And I think that's something important to note that you know, these are the flows and ebbs of the market, and it presents itself with opportunity. That's why you know what we're active managers, and that's what we believe active managers should do.

So the answer is yes, but for a very short period. We believe twenty twenty four to market, the economy will still do all right. So we do like credit, We do like risk assets, not at these valuations. So we do believe we unravel because you have to reprice for the higher discount rate. Once it does unravel, we will be buying, We will be going overweight. And I think that's something important to note that you know, these are the flows and ebbs of the market, and it presents itself with opportunity. That's why you know what we're active managers, and that's what we believe active managers should do.

Well.

Well.

You were saying that real yields go to two and a half to three percent? Is that correct? Really?

You were saying that real yields go to two and a half to three percent? Is that correct? Really?

Credit by carollability? Nothing for sure, but.

Credit by carollability? Nothing for sure, but.

To me, this is the lead of this whole thing because a lot of people are saying this is not driven by inflation. It's not driven and by growth, it's driven by something else. What is that something else driving the real yield hire?

To me, this is the lead of this whole thing because a lot of people are saying this is not driven by inflation. It's not driven and by growth, it's driven by something else. What is that something else driving the real yield hire?

Well, i'll tell you what it is. It's expectations. You know, when you read history books and the seventies and inflation throughout the sixty seventies, inflation wasn't an annoyance. It wasn't public enemy number one. It wasn't until Reagan and Volker came in where they said, inflation's public enemy number one. We're going to grasp, we're going to cut it, we're going to get it down. Right now, we're still in the annoyance sphace of inflation. That's why we think it will persist. That's why we think this is a secular change towards high yields, because it takes a lot to get it to be public enemy number one, and we're not quite there yet.

Well, i'll tell you what it is. It's expectations. You know, when you read history books and the seventies and inflation throughout the sixty seventies, inflation wasn't an annoyance. It wasn't public enemy number one. It wasn't until Reagan and Volker came in where they said, inflation's public enemy number one. We're going to grasp, we're going to cut it, we're going to get it down. Right now, we're still in the annoyance sphace of inflation. That's why we think it will persist. That's why we think this is a secular change towards high yields, because it takes a lot to get it to be public enemy number one, and we're not quite there yet.

At this point. You said that you're going to be a buyer when there is some sort of unraveling. What kind of unraveling is going to cause you to be a buyer If everybody's been saying this, they're waiting for the dip to buy, and that's the reason why there hasn't been a dip.

At this point. You said that you're going to be a buyer when there is some sort of unraveling. What kind of unraveling is going to cause you to be a buyer If everybody's been saying this, they're waiting for the dip to buy, and that's the reason why there hasn't been a dip.

Yeah, you know what were The way we take risk is a mix of quantitative and qualitative. You know, we have structural risk and tactical risk. Our structural risk will be buying as yields get higher. We have our levels, we have our view, and then we reassess as they get to those levels. But as I said, we're still short, and we're still fairly significantly short, but we will be covering that on any further weakness and ultimately going long.

Yeah, you know what were The way we take risk is a mix of quantitative and qualitative. You know, we have structural risk and tactical risk. Our structural risk will be buying as yields get higher. We have our levels, we have our view, and then we reassess as they get to those levels. But as I said, we're still short, and we're still fairly significantly short, but we will be covering that on any further weakness and ultimately going long.

How concerned are you about the quintuple risk that we keep talking about that maybe we're seeing right now capitulation ahead of the market turning towards all of the expectations of slower growth given shutdown strikes, higher gas prices, student loan repayments, and just the rates the cost of borrowing going up as much as it has it.

How concerned are you about the quintuple risk that we keep talking about that maybe we're seeing right now capitulation ahead of the market turning towards all of the expectations of slower growth given shutdown strikes, higher gas prices, student loan repayments, and just the rates the cost of borrowing going up as much as it has it.

Loosten, I don't have any concern, and the reason is I look at the market. It's all about framing and how you look at the market. So I look at the market like a Boeing a Boeing airplane. So We're getting all these weather patterns hitting each other, low inflation, high grow, low growth, all this and we're getting turbulence. And you know what. The turbulence could shake the plane, it could drop five hundred feet, but it's going to survive coming out of it. So I have no worries about it. But I do believe we're going to have a lot of turbulence over the next year.

Loosten, I don't have any concern, and the reason is I look at the market. It's all about framing and how you look at the market. So I look at the market like a Boeing a Boeing airplane. So We're getting all these weather patterns hitting each other, low inflation, high grow, low growth, all this and we're getting turbulence. And you know what. The turbulence could shake the plane, it could drop five hundred feet, but it's going to survive coming out of it. So I have no worries about it. But I do believe we're going to have a lot of turbulence over the next year.

Ear very quickly here, and folks, we're gonna get a little nerdy here, as we did with Katie Kaminski. Excuse me, Earl Davis. I've got looney at a one thirty four. It is stochastic, weak Canadian dollar, it' all one forty. It's stochastic because the systems overcome by events. If I get an Earl Davis market, I get a stronger dollar. And does a stronger dollar itself solve its own problem?

Ear very quickly here, and folks, we're gonna get a little nerdy here, as we did with Katie Kaminski. Excuse me, Earl Davis. I've got looney at a one thirty four. It is stochastic, weak Canadian dollar, it' all one forty. It's stochastic because the systems overcome by events. If I get an Earl Davis market, I get a stronger dollar. And does a stronger dollar itself solve its own problem?

That is a great question, and I agree with the sequencing of that. What the stronger dollar itself does? It allows us to play out into our story where there's going to be some volatility in this quarter, but twenty twenty four is going to be all right economically. And the key to that stability from an economic perspective is a stable, strong dollar, so I think it allows us to play into the story of yes, we're going to have vaults all times, but we're on the best of airplanes and we'll serve it's made for this and we'll be able to survive and not only rice thrive. You have to remember, as yields go higher, that's a longer expected return for retirees, for pensioneers, for investors and bonds. There's going to be tremendous opportunity here. And even though we believe we're in a secular beer market, I see twenty twenty four being a cyclical bull for gields.

That is a great question, and I agree with the sequencing of that. What the stronger dollar itself does? It allows us to play out into our story where there's going to be some volatility in this quarter, but twenty twenty four is going to be all right economically. And the key to that stability from an economic perspective is a stable, strong dollar, so I think it allows us to play into the story of yes, we're going to have vaults all times, but we're on the best of airplanes and we'll serve it's made for this and we'll be able to survive and not only rice thrive. You have to remember, as yields go higher, that's a longer expected return for retirees, for pensioneers, for investors and bonds. There's going to be tremendous opportunity here. And even though we believe we're in a secular beer market, I see twenty twenty four being a cyclical bull for gields.

This is fabulous. Earl Davis, thank you so much with b MO Asset Manager for picking up the debris of our London trip. Is Holger Schmeting is chief economist in Behrenberg and has been incredibly perceptive about this linkage of monetary and fiscal economics in Europe and.

This is fabulous. Earl Davis, thank you so much with b MO Asset Manager for picking up the debris of our London trip. Is Holger Schmeting is chief economist in Behrenberg and has been incredibly perceptive about this linkage of monetary and fiscal economics in Europe and.

China, which is really a key question at a moment of flux. In Holger Schmeting, I would love to get your opinions starting on what we were just talking about, which is this trip of all these Sambrovskis over in China. What is the likely outcome to some of the rhetoric that is increasingly hardline out of European leaders, Well, the.

China, which is really a key question at a moment of flux. In Holger Schmeting, I would love to get your opinions starting on what we were just talking about, which is this trip of all these Sambrovskis over in China. What is the likely outcome to some of the rhetoric that is increasingly hardline out of European leaders, Well, the.

Likely outcome is clear. Germany, the European Union is reducing its dependence on China. De risking is the word, not decoupling. But the message from Dombsko Doro is clear. We are serious about this and in a way we are self confident in Europe. Yes, we do have some economic problems, but China probably has economic problems that are worse. We are the bigger market than China. We the European Union. Yeah, don't have to just accept what China does with subsidies, with its distortions. We can push back.

Likely outcome is clear. Germany, the European Union is reducing its dependence on China. De risking is the word, not decoupling. But the message from Dombsko Doro is clear. We are serious about this and in a way we are self confident in Europe. Yes, we do have some economic problems, but China probably has economic problems that are worse. We are the bigger market than China. We the European Union. Yeah, don't have to just accept what China does with subsidies, with its distortions. We can push back.

Well, is there a sort of a tacit acceptance of slower growth or even recession during this transition process away from really depending on trade with China.

Well, is there a sort of a tacit acceptance of slower growth or even recession during this transition process away from really depending on trade with China.

There is a tacit acceptance yes, that, of course the de risking with China will means some short term losses. It also is an acceptance that, yes, if we want to be less dependent on China in the long run, an economy China that is actually struggling and will likely continue to struggle for quite a while. It means we get less boost out of foreign create with China. But having said that, the lesson we've learned from Putin is clear, if you're too dependent on somebody whom you don't fully trust, you may eventually pay a heavy price for that. So it's probably worth de risking now with modest near term pain in order to secure a longer term, fairer, more equal relationship with China.

There is a tacit acceptance yes, that, of course the de risking with China will means some short term losses. It also is an acceptance that, yes, if we want to be less dependent on China in the long run, an economy China that is actually struggling and will likely continue to struggle for quite a while. It means we get less boost out of foreign create with China. But having said that, the lesson we've learned from Putin is clear, if you're too dependent on somebody whom you don't fully trust, you may eventually pay a heavy price for that. So it's probably worth de risking now with modest near term pain in order to secure a longer term, fairer, more equal relationship with China.

You know, one of the great criminal acts in New York City is the Oak Room at the Plaza Hotel has been shut for I think twenty years, absolutely ridiculous, beautiful and historic room as well holgrish mating right now with dollar day after day, up up, day after day, Euro down down down, over nine ten weeks, whatever it is. Are we getting a distance to a plaza accord? How many kilometers are we from the discussion of a new plaza accord?

You know, one of the great criminal acts in New York City is the Oak Room at the Plaza Hotel has been shut for I think twenty years, absolutely ridiculous, beautiful and historic room as well holgrish mating right now with dollar day after day, up up, day after day, Euro down down down, over nine ten weeks, whatever it is. Are we getting a distance to a plaza accord? How many kilometers are we from the discussion of a new plaza accord?

I think we are quite far away from any discussion of that. So far, the move seems to be gradual. It's not disruptive. It seems to reflect that the US economy is holding up better than expected, whereas the Eurozone is kind of in stagnation. So as long as the currency moves gradually, and does not seem to be fully out of kilted with fundamentals. I don't think we need a massive intervention come next year. With the European economy picking up again, the FED cutting rates sometime next year, and the easy be possibly not cutting rates, the euro will likely recover on its own.

I think we are quite far away from any discussion of that. So far, the move seems to be gradual. It's not disruptive. It seems to reflect that the US economy is holding up better than expected, whereas the Eurozone is kind of in stagnation. So as long as the currency moves gradually, and does not seem to be fully out of kilted with fundamentals. I don't think we need a massive intervention come next year. With the European economy picking up again, the FED cutting rates sometime next year, and the easy be possibly not cutting rates, the euro will likely recover on its own.

This is really really important because the key thing there you said was we are not disruptive. Right now, market participants feel we're disruptive. We're making jokes about a quinfect of five different things we're bouncing off of right now. What is the policy the best policy prescription for La Guard and government leaders in Brussels.

This is really really important because the key thing there you said was we are not disruptive. Right now, market participants feel we're disruptive. We're making jokes about a quinfect of five different things we're bouncing off of right now. What is the policy the best policy prescription for La Guard and government leaders in Brussels.

I think it's basically now, stay the course for monetary policy. Okay, I think we've tied a bit more than we should have, but now the mythelic clear message is we're probably at the peak, which has actually been one when it came out, been sort of reassuring for markets and for physical policy. I would say the same, stay the course, which largely means we have a big fiscal program in Europe. This next to any U program which is now above eight hundred billion. The task is more to make sure the money is being spent. That is the rollout of the program rather than thinking about any new money.

I think it's basically now, stay the course for monetary policy. Okay, I think we've tied a bit more than we should have, but now the mythelic clear message is we're probably at the peak, which has actually been one when it came out, been sort of reassuring for markets and for physical policy. I would say the same, stay the course, which largely means we have a big fiscal program in Europe. This next to any U program which is now above eight hundred billion. The task is more to make sure the money is being spent. That is the rollout of the program rather than thinking about any new money.

Is Jerown Powell. Central banker to the world is jer Own Powell, whether we want to admit it, or a central banker to Europe.

Is Jerown Powell. Central banker to the world is jer Own Powell, whether we want to admit it, or a central banker to Europe.

Not quite. Europe is not that dependent on the US to really say so. For Europe, it really is Madame la Guarde, the central banker that we have to that we are glad to watch.

Not quite. Europe is not that dependent on the US to really say so. For Europe, it really is Madame la Guarde, the central banker that we have to that we are glad to watch.

Do you think that people are too bearish in Europe? Is that basically what I'm hearing from you.

Do you think that people are too bearish in Europe? Is that basically what I'm hearing from you.

Not. For the next few month, we are having a sharp inventory correction manufacturing. We talked about China. The US economy near term will probably be slowing down. So near term trade export dependent Europe is having trouble. But come next year, global manufacturing will pick up. The inventory correction will be over next year. I think Europe could actually surprise here, and they're a bit on the upside.

Not. For the next few month, we are having a sharp inventory correction manufacturing. We talked about China. The US economy near term will probably be slowing down. So near term trade export dependent Europe is having trouble. But come next year, global manufacturing will pick up. The inventory correction will be over next year. I think Europe could actually surprise here, and they're a bit on the upside.

Will some of this slow down and surprising negativity in Europe correct inflation?

Will some of this slow down and surprising negativity in Europe correct inflation?

Our inflation doesn't have that much to do with domestic demand. A bit. Inflation is coming down largely because this big poutine shock on energy and food prices is largely fading. We have a bit of wage inflation to come to pass through for the next half year. But all in all, inflation in Europe is having two probably around two point five percent by the second half of next year.

Our inflation doesn't have that much to do with domestic demand. A bit. Inflation is coming down largely because this big poutine shock on energy and food prices is largely fading. We have a bit of wage inflation to come to pass through for the next half year. But all in all, inflation in Europe is having two probably around two point five percent by the second half of next year.

Okay, but this to me is really the dilemma, right if it's not going to really lead to low inflation, if we're facing a stagflationary type of environment in Europe, how much just at the template that we're basically being forced to live with higher inflation, even with taking the pain of de risking, with taking the pain of recession, even with all of the other toxic brew of the quinfecta that we're talking about this morning.

Okay, but this to me is really the dilemma, right if it's not going to really lead to low inflation, if we're facing a stagflationary type of environment in Europe, how much just at the template that we're basically being forced to live with higher inflation, even with taking the pain of de risking, with taking the pain of recession, even with all of the other toxic brew of the quinfecta that we're talking about this morning.

Well, seculation is a description as to where we are now. Probably in Europe, we may see later this week already a fall in this inflation rate year over year into the four percent hand or from a five percent hand basically on Bays effects. And again the big prorise in energy, especially gears and electricity prices late last year drops out of the comparison goods prices are stabilizing. I think that even without needing to constrain demand further, inflation will fall to around two point five percent by the second half of next year on its own.

Well, seculation is a description as to where we are now. Probably in Europe, we may see later this week already a fall in this inflation rate year over year into the four percent hand or from a five percent hand basically on Bays effects. And again the big prorise in energy, especially gears and electricity prices late last year drops out of the comparison goods prices are stabilizing. I think that even without needing to constrain demand further, inflation will fall to around two point five percent by the second half of next year on its own.

I look Holger at our trip to London, and I look back on how Europeans the United Kingdom, how they we perceive in America in disarray. How's it different this time?

I look Holger at our trip to London, and I look back on how Europeans the United Kingdom, how they we perceive in America in disarray. How's it different this time?

Well, it is a weird perception. On the one hand, we marvel that the US economy is holding up better than expected despite the massive FED rate hikes. But if we and we find reasons for that, yes, consumers and companies had good money to start with. Yeah, but when we look at anything that comes close to US politics, we basically shake our heads. How is this going to end? Was there another talk of a government shut down? We've had that so awful that it's kind of pouch by those standards we think European politics, especially the ones that Brussel actually are not working on.

Well, it is a weird perception. On the one hand, we marvel that the US economy is holding up better than expected despite the massive FED rate hikes. But if we and we find reasons for that, yes, consumers and companies had good money to start with. Yeah, but when we look at anything that comes close to US politics, we basically shake our heads. How is this going to end? Was there another talk of a government shut down? We've had that so awful that it's kind of pouch by those standards we think European politics, especially the ones that Brussel actually are not working on.

A Swiss watch luckily and JFK holders meeting, thank you so much with Behner Blverara joins us this morning here in another time and place from two thousand and seven. Sheila, if I'd read Daisy Bubble on that August afternoon in two thousand and seven where libor Ois went out forced to enter deviations, what would you have written about to sprightly seven year olds?

A Swiss watch luckily and JFK holders meeting, thank you so much with Behner Blverara joins us this morning here in another time and place from two thousand and seven. Sheila, if I'd read Daisy Bubble on that August afternoon in two thousand and seven where libor Ois went out forced to enter deviations, what would you have written about to sprightly seven year olds?

Well, to you, I would have said, you should have read Daisy Bubble, probably in two thousand and two, Tess and three, when the house in Cobble was starting off. Yeah, I would say to young people, as I say in the book, and there's some back matter in the book that talks a bit about the housing bubble and were recent crypto bubble, that speculation is dangerous. You know, her behavior is dangerous. How many times we told our kids don't do something just because everybody else is And bubbly markets are a lot about that. Gen Z has a word for it. Fear of missing out fomo, you know, right, and everybody else is getting in, and then the bubble pops, usually by the smart money selling.

Well, to you, I would have said, you should have read Daisy Bubble, probably in two thousand and two, Tess and three, when the house in Cobble was starting off. Yeah, I would say to young people, as I say in the book, and there's some back matter in the book that talks a bit about the housing bubble and were recent crypto bubble, that speculation is dangerous. You know, her behavior is dangerous. How many times we told our kids don't do something just because everybody else is And bubbly markets are a lot about that. Gen Z has a word for it. Fear of missing out fomo, you know, right, and everybody else is getting in, and then the bubble pops, usually by the smart money selling.

You were a seller.

You were a seller.

Yeah, for the investor, they sh just stay away.

Yeah, for the investor, they sh just stay away.

Kids were adults a saint with accolade from Democrats and Republicans alike about a patient approach in times of crisis. We had a banking crisis a number of months ago, and we're already back to fear and missing out. That crisis is over, is it?

Kids were adults a saint with accolade from Democrats and Republicans alike about a patient approach in times of crisis. We had a banking crisis a number of months ago, and we're already back to fear and missing out. That crisis is over, is it?

Well?

Well?

I hope the crisis is over. As I wrote at the time, I thought regulators did overreact. I'm not sure. Three mid sized regional banks failing buzzer crisis they treated as such. The rest is history. But yeah, I think more banks are going to fail. I think if properly managed, it will not be a crisis. Banks do fail. The reality is the very largest banks are too big to fail, notwithstanding our best efforts to try to kill that doctrine, and the smaller banks are heavily relied on insured deposits, which are stickier than the regional banks are suffering some they rely more on uninsured deposits for their where they're seeing outflows. But yeah, with the inverted yield curve inverted for over a year, now, you know if you're or deposed fending costs are going higher than your long term loan rates, you got a big problem. And with ci ARIA there, I can only assume there will be more bank fayers. I don't think it will be a lot. I think that FDIC and other government agencies have the tools to deal with it. But yes, I do. Over the next twelve eighteens, I think there will be more bank fayers.

I hope the crisis is over. As I wrote at the time, I thought regulators did overreact. I'm not sure. Three mid sized regional banks failing buzzer crisis they treated as such. The rest is history. But yeah, I think more banks are going to fail. I think if properly managed, it will not be a crisis. Banks do fail. The reality is the very largest banks are too big to fail, notwithstanding our best efforts to try to kill that doctrine, and the smaller banks are heavily relied on insured deposits, which are stickier than the regional banks are suffering some they rely more on uninsured deposits for their where they're seeing outflows. But yeah, with the inverted yield curve inverted for over a year, now, you know if you're or deposed fending costs are going higher than your long term loan rates, you got a big problem. And with ci ARIA there, I can only assume there will be more bank fayers. I don't think it will be a lot. I think that FDIC and other government agencies have the tools to deal with it. But yes, I do. Over the next twelve eighteens, I think there will be more bank fayers.

Let's put together some of the ideas that you're talking about, the concept of excesses, bubbles, people chasing the fomo trades, which we saw in mass over the past ten years, and then this idea of a rate regime that harkens back to when you were FDIC chair for the first time. How much have we seen the excess bubbles kind of worked through the system or are they yet to be worked through the system? In other words, are we still going to see that reckoning that people said what happen back in two thousand and seven, two thousand and or back in I should say, twenty thirteen.

Let's put together some of the ideas that you're talking about, the concept of excesses, bubbles, people chasing the fomo trades, which we saw in mass over the past ten years, and then this idea of a rate regime that harkens back to when you were FDIC chair for the first time. How much have we seen the excess bubbles kind of worked through the system or are they yet to be worked through the system? In other words, are we still going to see that reckoning that people said what happen back in two thousand and seven, two thousand and or back in I should say, twenty thirteen.

Yeah, so I think there's still there's some bubbles left that need to be popped. Hopefully it'll be gradual. You're seeing valuations come down, commercial real estate still inflated, You're seeing some of that start to correct. The stock market, you know, I think it's probably got some ways to go to go down again. So it's just a matter of whether we can you know, the expectations are right, people want to understand what's going on and we can manage it. But yeah, I think there's there's still many shoes left to drop. And of course, just in terms of credit markets and distress in debt refinancings, We've got a lot of corporate debt refinancing over the next couple of years. A lot of that CIA debt is expiring, needs to be refinanced. So these are shoes that are left to drop, which is why, even though I'm an inflation hawk, i am glad. I'm so glad that the bet has been hitting pause. I think they were going too fast. There's only so much of this transition to higher rates that the economy can absorb without triggering very broader problems in the financial sector, in the overall economy.

Yeah, so I think there's still there's some bubbles left that need to be popped. Hopefully it'll be gradual. You're seeing valuations come down, commercial real estate still inflated, You're seeing some of that start to correct. The stock market, you know, I think it's probably got some ways to go to go down again. So it's just a matter of whether we can you know, the expectations are right, people want to understand what's going on and we can manage it. But yeah, I think there's there's still many shoes left to drop. And of course, just in terms of credit markets and distress in debt refinancings, We've got a lot of corporate debt refinancing over the next couple of years. A lot of that CIA debt is expiring, needs to be refinanced. So these are shoes that are left to drop, which is why, even though I'm an inflation hawk, i am glad. I'm so glad that the bet has been hitting pause. I think they were going too fast. There's only so much of this transition to higher rates that the economy can absorb without triggering very broader problems in the financial sector, in the overall economy.

And Chila, You've been saying that you think that ultimately is good to have the discipline that higher you old does invoke, that they do invoke, But you think it's been too fast. Do you think that that ensures something of a recession that people are perhaps overlooking.

And Chila, You've been saying that you think that ultimately is good to have the discipline that higher you old does invoke, that they do invoke, But you think it's been too fast. Do you think that that ensures something of a recession that people are perhaps overlooking.

Well, I think if you go too fast, then you do truer crisis, and then the FED has to do you turn and ratchet back down, and you start this whole problem all over again. There's not much research that shows low rates and boost sustainable economic growth. There's a lot of research that shows as harms productivity, larger companies benefit much more than smaller ones. Actually, high rates help the smaller businesses because they get their credit from banks. It's easier to lend for banks, but bates are higher. And even though some pain in the banking system now, if we can transition into a more normalized high rate environment overall, I think that will make it make the traditional banking system the banks and pick deposits and make loans stronger. So you know, I've been a lot of corporate boards since leaving. My sentence is is that they don't borrow to invest in productivity. I mean that comes out of operating income. They want to do that anyway. So if you just make it cheaper to borrow, you know, that goes into m and a activity might go and buybacks. There's really no evidence that the ability to borrow cheaply by large companies goes into productivity. And I think the low productivity we've had since this very accommodative policy stance has taken hold shows that.

Well, I think if you go too fast, then you do truer crisis, and then the FED has to do you turn and ratchet back down, and you start this whole problem all over again. There's not much research that shows low rates and boost sustainable economic growth. There's a lot of research that shows as harms productivity, larger companies benefit much more than smaller ones. Actually, high rates help the smaller businesses because they get their credit from banks. It's easier to lend for banks, but bates are higher. And even though some pain in the banking system now, if we can transition into a more normalized high rate environment overall, I think that will make it make the traditional banking system the banks and pick deposits and make loans stronger. So you know, I've been a lot of corporate boards since leaving. My sentence is is that they don't borrow to invest in productivity. I mean that comes out of operating income. They want to do that anyway. So if you just make it cheaper to borrow, you know, that goes into m and a activity might go and buybacks. There's really no evidence that the ability to borrow cheaply by large companies goes into productivity. And I think the low productivity we've had since this very accommodative policy stance has taken hold shows that.

Sheila, thank you so much. Shela br the former president Washington, Come College of Maryland, former FDIC chairs as well. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern. I'm Bloomberg dot com. The iHeartRadio app tune In, and the Bloomberg Business App. You can watch us live on Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg

Sheila, thank you so much. Shela br the former president Washington, Come College of Maryland, former FDIC chairs as well. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern. I'm Bloomberg dot com. The iHeartRadio app tune In, and the Bloomberg Business App. You can watch us live on Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg