I want to start with you and really people just want to know what really is bothering markets right now.
Let's spend kind of carnage and rage and remain. I remember being on Wall Street week with with with the team in January and
I think I'm sort of you're on the same session and we talked about it. That said you know did not begin raising rates soon.
If they did not begin going from super easy to neutral then they were going to have to raise rates further than anticipated. And
I think today you know overnight Fed funds rates are still at point three three of one percent. But you can see in the two
year and the 10 year in the future forwards for Fed funds rate that rates going forward are going to be raised probably more
than we had anticipated just a few months ago and certainly for four growth stocks. That's really tough to take. And we're
seeing the big impact from the NASDAQ and and tech stocks. And I think that's unsurprising given the speed of the of the rate
increases that we've had. Afsane does that change the macro economic picture though for investors.
What it changes is that I think at the moment everyone is assuming that inflation will continue the way it is. And somehow
for some reason psychological or otherwise today really hit investors in a much bigger way remain than before. So the Fed
has been talking about starting to increase interest rates now for a little while. As Bob said obviously maybe should have
started a long time earlier. But the main thing is somehow today they realized that supply chain issues are going on. The war is
going to be a bigger problem. And and interest rates are going to go up. The big question I have is whether in practice
interest rates may not have to go up as much as we are assuming right now because. We are seeing that the market is reacting to
that to what is being put out there now as news. And if that happens maybe inflation will start coming down a little bit
earlier. And we are seeing at the same time that inventories have been
built out. Consumption is starting to get a little weaker. And the signs are that things could potentially soften a little
bit. Well we've certainly seen financial conditions come down quite a bit here and maybe that could make the Fed's job easier.
Afsane I am curious as to what you made out of that GDP report that we got this week that showed a contraction of one point
four percent. I think GDP numbers as we very well know are generally not super reliable and they do get adjusted. So on the
one hand you know if we look very closely what was really interesting is the fact that imports went up as much as they
did. But but exports did not. And obviously with the dollar having been stronger with the supply chains that we've had
that's not a very big surprise. The area that was really I think important and the GDP really did not get into it is the fact
that the lowest income population in the U.S. still is worse off.
And therefore if that's the case that we'll have a much bigger impact on GDP moving forward because that's the group that will
consume more and more and their consumption is much more sensitive to what's going on in the economy. And Bob when we
look at the economic data out there that GDP report notwithstanding here you're still seeing relatively strong
consumer spending. You have a job market that most people seem to think is still relatively healthy here. Do you think that the
economy is on solid footing and cannot withstand an aggressive Fed.
Yes. I think the you know the numbers were a little bit misleading to what ASADA said. You know GDP is about output not
demand. And you know in the fourth quarter last year it was up six point nine percent and down one point four. But five point
three of that six point nine was the buildup of inventories. So if you strip out that big inventory you can actually look as
ISE said a domestic demand actually improved. Consumer spending was stronger in the quarter. So on the one hand we still face
the same challenges which is core inflation's at 5 percent well above target. The labor markets are too tight there. There are
11 million job openings Roman and there are five or six million unemployed.
We've never seen a gap that big since we've been recording these kinds of numbers.
So I do think that the Fed has a lot of work ahead of it. I do think it's a very important meeting coming up because as I
said earlier we still have rates at no point 3 3 of 1 percent. We need to begin going from super easy to something that's more
normal. If you have a seat at the table at that Fed meeting next week what would you advocate for 25 basis points or something
more. I think they're going to raise 50 basis points. So I think if
you asked me I'd say seventy five. I think. I think they've waited too long. And by the way the Fed and the Treasury played
a blinder in March of 2000 20. What they did with the onset of the pandemic was extraordinary but they waited too long to begin
getting back to normalized rates and normalize curb. This is what we talked about in January after the economy was fully
recovered after we already had you know constraints in the labor market and after we already had price stability above the kind
of targets that that that they could set. So I think they just waited too long. Therefore they really need to get ahead of the
game. And I would love to see them do 75 to 100. Now I don't think they will I think go to 50. So Afsane do you think that
it's possible I guess for the Fed to effectively catch up with maybe what some people already view as a mistake. I agree with
Bob by the way that they will do 50 basis points. I think the important point is the psychology of the markets. Right. So what
I said earlier I still believe that if the Fed is starting to talk about a 50 basis points if the market starts talking which
it has already about 75 basis points that in itself is going to impact markets and impact inflation and demand. And also let's
not forget mortgage rates 5 percent plus rates housing prices 35 percent more. There are going to be dampening of demand as we
move forward with these kind of prices. And you know another part of the economy that we should really look at is as people
have acquired goods then started using services as Covid allowed us to go out of our houses and people are traveling.
Once you've sort of caught up with some of these changes in life. The man may not be on the same slope as everybody is
expecting get in that good scenario. We might catch up with inflation better if I want to be positive. Well well let's look
at real quickly here the earning season of now that we're almost halfway through here we've gotten some of the big names out
there. Have you been relatively encouraged by what you've heard. Not just with regards to the numbers themselves but also the
commentary out of some of the executives. You're absolutely right. Expectations were more positive than we
expected. And a lot of the numbers came. You know 77 percent of numbers were better than we expected. On the other hand I think
again the dampening effect is if the underlying consumption will start to weaken. If we assume that as rates go up and again the
behavioral part of the impact of the rates going up start impacting companies you're hearing a lot of CEOs looking
forward. The guidance they're giving whether it's metal whether it is JP Morgan whether it is other companies the company CEOs
all getting us to worry more about what's ahead early in the rest of the year.