Julie let me start with you actually on what we saw in the markets. What's driving the markets from your perspective right
now. Well the best way to make sense of the equity markets is to recognize that a month ago investors had a nasty shock when they
realized that rates were going up. You know the inflation numbers have been coming much higher than expected and the Fed
has really accelerated. What we're seeing today though is an investor realizing that earnings are being hurt by the
underlying economic slowdown. Excuse me. And that is really it's starting to drag on people as
they worry not just about inflation but stagflation. The combination of price growth and slowing price increases and
slowing growth that frankly we've not seen since the 1970s. So Peter the question everyone wants to know is how bad is it gonna
get. How far are we into this decline in your judgment. I think there's two answers to that. One is how far are the
markets down into their ultimate decline and how far are we from an economic point of view into slowing growth slash recession. I
think on the former point we're probably two thirds a little bit more of the way to a bottom in financial markets. It looks like
it's another 10 percent in equity markets. Find markets perhaps a little closer to their nadir. But we're gonna continue to have
that volatility until there is some clarity regarding how much the Fed is going to raise rates because it really is what
investors as Jillian points out are watching as it relates to the economy itself. I think it's a good argument that we're
already either entering a recession or in a recession. Manufacturing activity has dropped significantly. We've seen
leading indicators also decline. We've seen consumption activity fall. And CEOs are beginning to predict that the second half of
their economic activity for their companies is going to be a lot lower. So Gillian what about that low pick one of the things
that Peter talked about and that is consumption numbers. We had personal consumption numbers that really soft in the
United States as weak. And also of course we have the consumer confidence numbers which
are softening as well. That is a big driver as we all know of the U.S. economy. How big
a risk is that at this point for the U.S. economy. Well there are two or three factors right now which make it incredibly hard
to work out what's going on. One is the fact that yes you're seeing a real loss of consumer competence really quite
staggering decline in consumer confidence. And that kind of makes sense given the scale of price shock and inflation shock.
But something that we haven't really seen before in previous economic cycles is that a lot of consumers are sitting on fat
cushions of savings compared to the far past because of the fiscal stimulus.
And I was chatting with bank CEOs the last few days were saying that as of yet they haven't really seen signs of increased
defaults. They haven't yet seen signs that consumers are going bust or really in real problems. Partly of course with a lot of
jobs out there. Now the bank CEOs are preparing for a lot more consumer pain further down the track not least because one
implication of rising interest rates is that mortgage costs get back to go up through the roof and they're beginning to see
consumers dipping into their savings and cushions to try and keep themselves afloat. But there's a real time lag effect and
uncertainty playing out right now. The other one is about supply chains because so much of the
price pressure right now is not driven by classic demand increases or not just by demand increases but by supply chain
problems. And the honest answer is no one knows how long this supply chain
disruption is going to last. I was listening to Pat Gallagher from Intel a couple days ago saying it could be year and a half
before they really iron out the supply chain problems in computer chips.
But no one quite knows how that's going to impact the wider economy partly because companies have been increasing their
stocks in recent months and there's not a lot of visibility into how quickly they can run them down and how quickly they'll need
to restock as a supply chain start to heal or not heal. So Peter what about the supply chain issue. I mean clearly whatever it
was it wasn't transitory in the sense of a short term and I must say of his to a year a year and a half 18 months. That seems to
be a rolling 18 months. I feel like I've heard 18 months from he for some time now. Why isn't the supply chain fixing itself. I
mean theoretically in a market system prices adjust and those sorts of problems work themselves out.
Why haven't they. Well I think Jim points out the supply issues in the chips world.
And that has been more persistent although it has gotten better. And you can hear that from the semi CEOs and other related
entities in the more traditional supply constraint issues. Those have gotten better. So in the consumer goods there are not
electronics. Those companies are seeing alleviation of supply constraints and they're able to actually satisfy demand as you
saw really in the first quarter. One of the things I thought was interesting was Target and Wal-Mart who dramatically adjusted
their inventory prices because they ended up with way too much inventory price too high and maybe even the wrong goods so high.
And so we actually saw some price reductions. So I think we're a little bit past this. The acute phase of the supply constraint
problem and I think we're entering into a softer demand cycle and joint points out she's right that there's a lot of savings.
But at the lower end of the income scale those savings are not so big. And there may also be at that part of the economy some
job losses. So I'm not predicting a serious recession but I as I say I think we're further into this growth slowdown slash
recession than it appears. Joel Weber the chances we already are in a recession we just don't know it yet. Well we had one
quarter down there. Could be we have a second one. Well of course the bug with economic data is a data. It's always very
backward looking and there's no two ways about it. So it's entirely possible we are slipping into one. There are some more
current series of economic metrics like the Now series which tries to really amass different economic data to see what's
happening in real time. And those certainly do point to quite a sharp slowdown right now.
But you know I've gone around talking to no different auditors recently at business people and policy analysis and analysts and
ask them always to vote on what they think is happening. And the vast majority of people right now brace for a mild recession but
not as a steep one. And I think that probably is what the market the pricing in right now. Peter I pick up on one of the things
that Jillian referred to and that's the housing market. We pay attention to consumers because they're so important. That kind
of goodness knows the housing market could be as we saw in 2008 2009. It seems to be softening. What is the risk for the economy
overall from the housing market right now given particular mortgage rate.
Well mortgage rates are going to go up. Housing prices are going to stop increasing and in some cases go down. That affect
consumer wealth. That will affect consumer consumption activities including their savings. In other words they may not
spend their savings. We are not in a world where consumers lack for a lot of things. They have bought a number of tangible goods
and durable goods over the last 18 months. Given all of the stimulus in Covid. So I think that housing prices are going to
be challenged here. That's going to have an effect on consumers and that's going to add to the slowdown slash recession. We've
been talking about interest rates are not coming down in the short run. You heard Paul say we we're going to take down
inflation and that means interest rates are going to rise. And plus the fact I have to say interest rates have for the last
twelve years been at unusually low levels not sustainable levels. So the interest rate complex in total is going to rise
above where it has been for 12 years. And that's going to have an impact on the housing market as well.