258912882 - 1_wojfezjm - PID 1851201 Welcome to the revision daily briefing. It's Wednesday, June 8th, 2020 to I'm Ash Bennington, joined today by Dario doubt, founder and CEO of 42 macro. Let's take a look at the closing prices on US equities. Here. As we have this conversation around four o'clock, closing out the day. It's a down one, S and P 500 off about 45 points, 1, 1%, 0.08%, 4500, excuse me, 4,115 on the clothes, nasdaq, also down on the day off, about three quarters of 1% closing the day. 12,086. Dow Jones Industrial Average, following suit down eight-tenths of 1%, closing out the day here at 32,910, European equity markets closed fractionally lower on the day ahead of tomorrow's ECB rate decision, talking of international markets. Before we jump in with dairies, we're going to pause for an update on global markets by religions own Western Nakamura, who joins us live from Tokyo Western. Welcome back. Hello gentlemen, how are you? How are we? We're doing great man, not like dollar yen. What's talk about it? It's ugly. Yeah, I will. I mean, if you're long the dollar sign, it's not it's not so ugly. It's quite, quite, quite unwell, but we've broken into the 134 handle on dollar yen. So now the yen is just get continued to get crushed. Accuracy for folks who don't follow this currency pair, give us a sense of what 134 means and why it's so significant. Yeah, sorry. 133 AT was the resistance that was broken that then I'll continue it into the 134 handle. 133 AT was in our previous high right now we're looking at the next level being 135, akin to 1000 too high. That's just a few takes away. If that's broken, we're at a new millennium high, right? 1998, I believe. So. Whereas the weakest levels and, and not just the level itself, but like dairy. And there's I've talked about before, it's not so much the level, it's the pace in which it gets to this level. It's the volatility, the, you know, the velocity of the move in and of itself. That is of concern. Looking at that chart, you can see that just extreme steepness on that curve. By the way, for people who are relatively new to currency markets, we should say dollar yen, that shows dollar strength, Japanese yen weakness. So when you see that chart moving up into the right traumatically it's a dollar strengthening the when the yen plunging. Yeah. This is one. I don't, yeah, if you're looking at that right now, but what I always go to with my go to is looking at dollar yen spot and the US 10-year yield. They move in tandem. And so that's why you should care about what WE on is, is doing because it moves along with the risk-free rate and I don't care what you invest in. You need to know what the risk-free rate is. The. However, as of late with this breakout, you're starting to see diarrhea and really push through to these, these at least certainly your day highs, whereas the ten-year yield is not so good. Rest about the directionality of that correlation because it's an extraordinary chart when you show 10-year yield against dollar yen. Sure. If you look at chart too, okay. What that is is these are weekly flow data from the Ministry of Finance in Japan that shows basically foreign bond, net foreign bond buying or selling by Japanese investors. And as you can see it throughout the bulk of this march, surgeon treasury yields that coincided with a massive, massive unloading of foreign bonds. This is not just US treasuries, but a lot of it is from, from Japan. Then you see these two weeks in which you actually see some, a bit of a sort of meaningful inflow of net buying. That was when treasury yields came down recently. And then last week, we saw continued selling again, this is one week delay data. But you can really see that there is material impact from these flows that are coming from Japan, particularly Japan lifers, life insurance companies. Who are these, these massive capital allocators? They, a lot of them recently came out with their investment fiscal year 22 investment planning, if you will. And it's interesting to see, I mean, these are always subject to change, not always followed, but the ranges for like what they're trying to do and all that is like. So their upper range, the highest estimate or highest outlook for dollar yen by year and is 140 for these lifers. Tenure JTB is 25 basis points where the cap is, one of them was actually above that, so one of them believes that it's not going to hold that. And then the, the highest for the 10 year US treasury yield was forecast was somewhere around 3.4%. So 3.4% of the 25 base point GDB pen One $40 yen spacing what that means. So 140 is really not that like doomsday out of the question there in the model forecasts for, for these major allocators. Western, we really appreciate you joining us from the middle of the night from Tokyo, just to double-click on it one more time. The significance of this to global markets. Yeah, chart three is basically just the first two of the first two charts just combined. And you can just clearly see, I'm going to put this up on Twitter as well. I use it and you really need to watch our yen because you really need to watch what, you know to get some sort of price signal as to what Japanese investors are or are not doing. Good gets more complicated with like, you know, current hedge and all that kind of thing. But by and large is that you need to keep an eye on this. And also because simply because US Treasuries is the risk free rate we're talking about. All right, so if you have something that is closely correlated to the 10 year US treasury yield, dollar yen, then you certainly need to look at that, that asset class as well. Yeah, and by the way, for people who are interested in more, they can follow you add across the spread on Twitter. We'll see many more of these charts and more of this analysis. Indeed wasn't Nakamura. Thanks so much for joining us. Thanks a lot. Thanks for letting me ask you. Once again, I love it, my friend, I love it. And ask one quick thing before we transition. I do want to make the key point and why investors should care about these Dolly and these cross currency dynamics is because the policy divergence between the Bank of Japan, maintaining its yield curve control would effectively unlimited buying of JG be some along the curve creates this sort of massive spread between your market implied interest rates in Japan relative to our interest rates in the treasury curve. And so as long as the BAHA is deemed to be sort of maintaining that easy policy incentive for a Japanese investors to go out and then speculate abroad, et cetera, et cetera. But the problem with speculating in the treasury market, as we continue to see, is this market continues to underestimates that that's resolve with respect to tightening monetary policy and more importantly, the stickiness of inflation as those are two things that they think we should touch on today. Well, they're still in many ways that's the perfect transition from the dollar yen store into the broader macro picture. Give us a little bit of context of what's on your radar and how you're thinking about these markets right now? Yes. So it's a, it's a pretty quiet week. I mean, obviously, we're in the quiet period from the perspective of FOMC speakers. We had the meeting next Wednesday. So the kind of the key headline this week that's going to take the headline this week is a Fridays CP airport tomorrow will get the ECB. I don't want to rain on their parade and we'll also get the Chinese credit data for the month of May, tomorrow night as well. We can touch on those, but I think very clearly the number 1 thing that's going to rock markets this week. To the upside or downside is inflation will get that print on Friday. I think consensus is expecting tick down by ten basis points or someone headline a tick down by 20 to 30 basis points on core. But to me, I don't think the year, the rate of change, we can talk about this for nine months now. I don't think you ever, your rate of change matters. What matters is the sequential momentum and inflation, because that will be the clearest indication. The Fed and for financial market participants receiving what quote unquote, clear and confirming evidence that inflation is either getting back under control or continuing to misbehave after a few, few statistics and charts out there at you. So to me I think the biggest risk with respect to Friday's print is this potentiality that we get overtaking of core inflation momentum by services inflation relative to goods inflation. So Brian, if you go up a couple of charts, the first chart just shows what if the title is what if disinflation in core, good CPI dot, dot, dot here. What we're showing there is just the, the, the, the sort of the core CPU, core goods inflation in the top panel, the middle panel shows that on a yearly rate of change basis. The bottom panel shows that on a, on a three month annualized basis and white now we're seeing a significant slowdown in the three month annualized rate of core good CPI, it's about 0.8% annualized basis. That's all way down from the year of your rate of 9.7%. So that's what's really driving the disinflation we've seen and core inflation out the highs, the disinflation in core PCE we've seen out the highs. But the issue is, and the next chart is dot, dot, dot his overpowered by accelerating core services prices. And the reason I bring this up is because we continue to see evidence of an incremental acceleration in services prices. We did what this chart is showing top panels as core services, a core services prices year over year in the middle panel, in the three month annualized in the bottom panel. And if you notice that three month annualized there not only is accelerating to 7.5% on a three-month annualized basis. That significantly faster than you ever, your rate of 4.9%. So it's telling you we're continuing to build momentum to the upside and that time series. And oh, by the way, we saw things like energy prices climb into IES, agile coach with prices grinding higher. And so to me, I think the takeaway before we pause, Yes, If we get inflation statistics misbehaving by this dynamic. We're going to see an incremental step function higher in bond yields and policy would expectations, et cetera, dress as a striking chart? Walk us through a particularly for people who don't have extensive macro backgrounds. What are we seeing there? What's the driver, what's the broader implications? Absolutely. So so the the the top panel is just showing me the time series in a, in a non-stationary manner. So core services, inflation, so things like housing, rent, utilities, et cetera. It's basically all the stuff we consume it from a service, medical consumption. Most services generally tend to be core, fall on the core basket. Weave fabric weren't. So this is, this is that the larger lion share of inflation. I mean, It's basically to 65 percent of the overall CPI basket. And so the fact that it's being overpowered by goods disinflation is anomalous, which tells you that if goods, this inflation slows at any, at any point in time in the next few months. What's more likely to happen is that this does in fact becomes the dominant driver of inflation as it traditionally is, and it continues, it'll likely keep inflation, particularly core inflation operating in a more sticky kind of level for the summer months. Yeah, the only thing that's striking to me about the lower two panels is what every serious macro person will tell you the same thing, It's not just absolute levels, rate of change matters. Rate of change, rate of change, rate of change. Man, it's the secrets of the universe, is the secret to financial markets. So, you know, most, most economic statistics for those of us who aren't walking economists, they tend to get measured, at least on a year-over-year rate of change basis. That tends to matter a lot to financial market participants and obviously market and policymakers as well. What I think is matter most throughout this particular cycle, just given this sort of unusual nature of this pandemic recovery, we've seen some massive stimulus. We seen that roll off of massive stimulus. We're seeing several fits and starts from a COVID perspective. And so what does put a lot of onus on tracking time series from a sequential momentum perspective, month over month, three month annualized, et cetera, get a sort of a cleaner read on the data because there's been so much lumpiness in the year of your time series. And so when you look at things like core services inflation at 7.533% month analyze median CPI, which is the median inflation rate of everything in the CPI basket at 6.2% annualized or sticky CPI, which is one of the statistics down effect calculates there probably is close to the inflation measurement as any of the Federal Reserve banks, that, that 6.5% there metabolize these numbers are all extremely inconsistent with the Fed getting core PCE back to its 2% target anytime soon. And so to me, I think the risk in financial markets, particularly from anything north of 4 thousand on the S and P or anything north and the 3.5 on maybe one year forward, you know, your your, your pricing fed from Futures pricing, etc. To me it is the braces to the upside on rates into the downside risk asset market pricing. Yeah, so let's walk through that a little bit, try and explain it a little bit, particularly for people who are not macro focus. I'm curious about this. There's this sort of old phrase out there. Kind of a joke, kind of not a joke that the cure for high prices is higher prices. Meaning that as prices begin to rise, there's a natural decrease in demand that happens. You start to see some contractionary risk in terms of growth, in terms of productivity, in terms of a whole series of other variables. One of the stories on the wire today that's really interesting is that mortgage demand right now has fallen to 22 year lows. A pretty striking number. Again, to get back into the thesis cure for high prices, higher prices. This idea that one of the things that you've been hearing, everyone talking about the last six to 12 months is how rents have been increasing. Here in New York City. It's a constant topic. My landlord wants to increase my rent 15 percent, 20 percent, 25 percent. When I walk down the streets, there's a building on the corner that's been vacant for the 16 years that I've lived here there now renovating, rehabbing those apartments. Why? Because it's become economically advantageous to do so. It's such a seller's market right now. And then you see this print showing that there's a significant decline, a 22-year low, in fact, the rate of mortgage consumption, what's happening there, Dario, help us understand it. Yes. So the housing market, it, you're absolutely right. High prices is the cure for high prices. We've seen negative view of your mortgage demand for basically about 69 months now, that's likely to continue. I mean, you look at the last two prints we've gotten from a out of the housing market, from a home price appreciation standpoint. When you look at the core logic Case-Shiller numbers accelerating to an all time high north of 20% year over year. The fifth, which tends to measure housing prices, you know, kind of in the middle to lower incomes cohort. That's also accelerating to an all time high. That was Q1 data a couple of weeks ago. And the issue with that as it relates to inflation, going back to this discussion between core goods and Core Services, inflation, as you know, something like shelter inflation is about a third of the basket. An owner's recording that went, which is a function of shelter or one of the features of shelter inflation. That's about 75 percent of that particular component in the CPI basket. And so as long as we have home prices continue to accelerate, it's likely to have a tail in terms that could perpetuated the acceleration we're observing in owners equivalent rent and by extension, shelter inflation. I mean, we've done an analysis that shows the lead, the lag between sort of peaks and troughs in housing. Price appreciation on a yearly rate of change basis tend to be about 12 to 18 months ahead of the peaks and troughs. You every rate of change in owners equivalent rent. So that's suggestive. Just based on these peaks, we could be seeing an acceleration in shelter inflation, particularly through owners equivalent rent, which is calculated on a much longer lag than than observed home price changes for extended periods for over a year from now. And to me, I think that's a real big issue. If you think about a Fed that's kinda hoping and praying that inflation is still kinda transitory. You know, that's where this whole concept of a September pause came out with an unfortunate, unfortunately no brainer as walk that back pretty forcefully. I think they're going to do a lot more walking back. If these in place statistics over the next couple of months don't do what I think markets are really hoping that they do. Yeah, Dara is obviously what we're talking about monetary policy, global view here I'm revision daily briefing. I know that you have a global view at 42 macro. Obviously tomorrow, what are the topics of conversation? Ecb, rate, decision, expected. What's your take on what's happening in the Euro area? Yes, or the situation in Europe is, is fascinating. Because on one hand, it's pretty clear that Europe's engaged in a cyclical slowdown. When you look at the furthest leading indicators, the ones that had the longest lead times, like the zoo index or the, or the syntax index. You know, these things can delete the BMIs over in Europe. These things are in recession mode. You're again seeing some of the lagging hard data already started to break down in Europe. And so it's pretty clear that Europe is having a much more sort of adverse response to the geopolitical consternation, the inflation dynamics in Europe, I've obviously been even more off the charts and they had been in America. I've showed a chart a few times in this program where we show the inflation surprise indices for us versus the Eurozone and the eurozone inflation surprise index is literally like several times higher than the US inflation surprise index. And you obviously seeing European inflation accelerate to an all time high in the most recent month in May data. And so there's very clearly a bigger issue. The inflation is a surprisingly bigger issue in Europe than it is in America. I think it's pretty hard for most American people to believe that, but it actually is true. And so that puts a lot of pressure on the ECB and they've acknowledged it and they're likely to do something to really giddy up in terms of tightening monetary policy, tightening financial conditions to the bare minimum, put a floor in the Euro. So what's likely to happen tomorrow? They're likely to in their asset purchase program because they've guide it to rate hikes starting next month, starting in July. And so they gotta get that done in order to give them some some some policy space to do that because they've sort of guide it to not wanting to do both of those things at the same time doesn't make any sense, right? Why would you be doing Q0 and then read at the same time, I think it's preposterous that they're ending q0 a month before they start hiking rates. But that's neither here nor there, right? The Europe, they have a different mandate relative to the Fed in terms of keeping vital European project together? Yeah, a paradox and monetary policy, I don't believe it. Yeah, No. Well, another paradoxes is, again, nerdy, nerdy, nerdy macro strategists joke but you know, what do you call them? How do you know you're in a globally synchronized downturn from a growth perspective, the ECB hikes interest rates, right? Like the mode gotta go back to the summer of 2008 during the global financial crisis, john Paul Trisha, Our buddy hike, did just rates because again, going back to those, that time, inflation was a big issue back the end. Yet crude oil gone up to a $150 a barrel there abouts on brand. In 2011, in the middle of their own sovereign debt crisis, they hiked interest rates because again, the inflation dynamics really came home to roost. And so we think we're at a very similar setup today. And 1 out finally make is you have pretty much every major central bank with the exception of the Bank of Japan and the Bank and People's Bank of China actively engaged in draining liquidity from financial markets. And obviously the Fed's going to be the £1000 gorilla in that matrix. This is very unlikely to be a good, This is going to be a bumpy ride. We've never really seen this kind of coordinated tightening before on a pro cyclical basis, usually monetary policy is being removed, liquidity is being removed when the economy's getting better. You go back to the last UT episode. You know, the vast majority of that QT occurred when the economy was accelerating to a 10-year Hein and growth. For me to get it from a US and global growth perspective. Right now their post-secondary accelerating tightening into the teeth of a slowdown in my opinion, I'm not sure asset markets it fully priced at a boy, That's a really dark, cynical punchline about the ECB. Yeah. Well, they put it on the page areas. Let's talk like flip the script over here a little bit, a 180 degrees. We're talking about this idea that the cure for high prices is more high prices. Is the cure for low prices, more low prices. There's a story that I saw earlier today. The Kathy would over at AHRQ, has purchased 55 thousand shares of Tesla. Obviously, this is a test that off about 50 percent from November all-time highs. What's happening there? Is Kathy ahead of the curve, or is she dangerously close to getting over excuse in a market that may continue to decline? I mean, depends on your duration, right? Like, you know, I'm sure Tesla, five years from now will be one of the biggest stocks at birth from a couple of trillion dollars, if not more than that, um, and Kathy will have been right on that purchase if you give her the time time horizon. If however, you're someone who doesn't want to blow up your money in between now and that's called, you're in. When we are, based on our analysis, we think the Fed's likely to remove somewhere on the order of $950 billion, drained from from excess liquidity. It between now and you're in like, I'm not sure that buying Tesla is a good idea ahead of that. There's a view in financial markets right now in terms of the debates, I'm happy with institutional investors that a significant amount of the tightening has been priced in what? But historically speaking, that has not been the case. It's very difficult to price in the mechanical dynamics of quantitative tightening, the mechanical dynamics of a dramatic increase in the reverse repo facility. The mechanical dynamics of Janet Yellen issuing a bunch of coupons and a market that is effectively extremely short duration, like the, those things have to happen. And so it's, it's our view that those kinds of Kathy would a user as a poster child for this braise and attitude of in risk takers that are still, that's divider image exists, right? A lot of investors made a lot of money from the lows of 2020, highs of 2021 and whatever asset class they were long or the highs of January 2022. If you take it from a US equity perspective. And a lot of those people think that it was their brilliance. A lot of them don't realize that it was just the Fed balance sheet expansion, the expansion of net liquidity. And oh, by the way, this massive thing called a globally synchronized recovery, awful lock down depression in April of 2020. Well, basically all those factors are working in reverse. So it's unclear to me why investors haven't materially alter their asset allocation, which is something we can observe in the positioning data when you let it flow, phones report. Yeah, indeed, and you make precisely the right point there, which is the notion of the duration that you're looking at across. Obviously these are incredibly volatile stocks. Obviously they're sensitive to interest rates. But Kathy, what has been a visionary discovering innovation depending upon the holding period. A really critical point, talking about Tesla, talking about hydration stocks, something that it's correlated to, of course, digital assets, cryptocurrency. I wanted to show a clip from a conversation earlier today, niko Brigade and, and Santiago Velez, an eye on a show called crypto unwrap. This is a weekly show that we're doing here at religion that we're streaming live every Wednesday, looking at what's happening in digital asset markets across the board. A conversation today that we had about some new legislation potentially coming down the pike from two senators, Christian, Jill O'Brien and Cynthia lemmas. Let's take a look at that clip right now. Huge regulations released yesterday, proposals in the Senate by two senators, Kristen Gil, a brand from New York and centered or Loomis from Wyoming, long time bitcoin supporter. So that that's that's a wide ranging comprehensive bill that seeks to, I guess, address multiple regulatory uncertainties in various categories. We could go through a deep dive into the bill. It's, it's, it's a massive statement from the Senate. So we'll see whether or not it's kinda get past this bipartisan support in it so far. And it looks follow right along the lines of the President's executive order that was released earlier this year to kind of debt consensus in the various regulatory bodies on who's going to cover and what, and what the definitions are. So it's very encouraging. I'm looking forward to it. So obviously, regulatory risk has presented itself as a significant headwind in the space. Ie, if we can get some resolution, some clarity in that space, probably a tail and Derek, thoughts on this. Yeah, now this is a cell, the rumor by the news event regulation in the digital asset space. In my opinion, it's pretty clear to me that there is a, there's several things that are very clear to us in terms of our research. One, if you look at the output of our secular inflation model, it's pretty clear that the trend in inflation, at least in the US, is sort of transpose itself about 40 percent higher, which implies that you're going to have 40% lower real interest rates on the on-balance, assuming no real material change in that policy regime. So that's, that's one that means there needs to be an asset allocation pivot from a strategic asset allocation perspective. Out of this concept of 60, 40, and maybe into something that looks more like 60, 30, 10 or 60, 25, 15. And that 10 and 15, Is it things like commodities, real assets, et cetera. And I do believe that there is an institutional, sort of there's a dam of institutional capital waiting to be allocated to the digital asset space. You know, things like Bitcoin as a store of value, other tokens, etc. The problem with that m is 1. We continue to see a tremendous amount of volatility that makes some investors hesitant. But I think the bigger problem, particularly from an institutional investor perspective, is you don't know the rules to the road. Is it a security? Is it not a security? Right? What's this? How is this going to get regulated? What happens in the event of default here? Are this, this, this, this, It's tethered or whatever, these tokens, et cetera, Gold bus. All that stuff needs to get regulated in order to understand the rules of the game and the path of the road. And I think if that is the case, you're going to see a tremendous amount of capital flaunted digital asset space, particularly in the era of really low negative real interest rates. Yeah, I think that's exactly right. That makes perfect sense. And precisely the way that institutional investors think about the types of headwinds in terms of an absence of regulatory clarity, this is something that institutional investors you need to come in at scale are always very concerned about totally, totally, totally, absolutely. By the way, I should say that clip you just saw is a slice of the in-depth analysis you'll get from religions. A show crypto unwrapped. I just like religion daily briefing. It's a deep dive into the major stories that are happening in the crypto space. We're running that live every Wednesday at ten AM Eastern time, 730 PM in Mumbai and ten PM in Hong Kong, a global market, a global show. Doris, we've got a lot of questions flowing in right now. Want to jump into him? Absolutely discipline the kiddie pool is do it. Okay, first question, simple one. I add Burke wants to know what's the prediction for CPI on Friday? No fence add I think you're asking the wrong question. It's about whenever you're walking into an economic released as a consequence. It's less about what happens and more about what the market is set up to do infinity. And so there's a couple of things that I call out. Look at the market, set up the market structure. One, we're broadly, at least prior to today, we were broadly over bought on most indices, you know, at least according to our problem range process. And then you look at the sort of crowding analysis that we do to sort of identify extremes and derivatives market to take advantage of. The market setup continues to be quite negative with a pretty significant implied volatility discount, a pretty significant reduction and skew relative to the one-year trend. And so the setup for the market is, is basically price for protect perfection. So if this thing sneezes in the wrong direction on Friday, That's all that matters. And so try to reorient your mindset away from playing pin the tail on the donkey and reorient your, your your focus budget really to understanding the setup heading into these events. Yeah. I'm going to be sneezing on the wrong direction on Friday and probably always because its peak allergy season here only comment. I should apologize for sounding a little hoarse. I have a terrible allergies this time of year, so let's break. And this is a question from Jim Griffin. Revision website. Doesn't inflation break when goods deflate and not when services deflate? Dic touched on this a little bit earlier. For people who don't follow Macro Markets as closely as you do, give us a little bit of an explanation for what that means and why this distinction is so material. Yeah, no. So he's, he's right in what he's identifying is the fact that services inflation dynamics tend to be stickier. You tend to get more variance in goods deflation and by, by, by a function of that variance, it tends to be the dominant driver of the variance in CPI, but it's clearly not the dominant driver of the actual overall price level of the economy. And so my point is, is that clearly the variance in core goods and goods inflation broadly, if you look at commodity prices, has been the dominant driver of why we have, you know, a point that headline CPI, the current juncture. The point I'm making is that if that variance produced, is produced at any point in time over the next few months, the probability that the variance, the change in services prices takes over as the dominant driver is actually quite high and services prices continue to accelerate to the upside. And that is very counter to what I believe is become a very sort of, I would say fully consensus but pseudo consensus market narrative that inflation's Pete, It's going to be under control and a few months in the Fed's going to pause and we'll be back to something that looks like Q0 by the index by the beginning of next year. To me, I think the only path to getting something that looks like Q0 are what we call Federal Reserve ambulance sirens or two macro is through is through the suit. You gotta go, you gotta have the pain to get the gain. You're not going to have your cake and eat it too. Unless of course, for the first time in recorded history, inflation just magically just inflates without a reduction in demand, without a reduction in profitability, et cetera, carries felt a little bit of the context. Why is that the case with goods inflation versus services inflation, is it because you have to basically spin up physical productive capacity factor is coming on and offline and there's some lag and lead times there. Yeah, absolutely. So it goes back to the supply chain, right. So you have inventories, you have shipping, sourcing, production. All these different things are sort of lead to variable costs, variable time of delivery, variable orders. That the fact that is a physical good means that more hands need to touch it. More things needs to be shifted to be sword and all those things have cost associated with them where services prices, tendency to be set on a contractual basis. You know, maybe not all services. Obviously you think about something like an airline ticket. But generally speaking, it's a lot easier to sort of pass through services prices. And as a function of that, you tend to see sort of more sticky prices that tend to climb in a less volatile way. And this is why you tend to see if you look at something like core PCE, it tends to be dominated by services prices, but that doesn't mean that, that goods doesn't matter. Goods, goods is the variable part of the economy. If you look at an inventory sac, right? We've been building inventory for the past three quarters. If you look at on average, 82% of the headline GDP was observed since the third quarter of last year has been inventory builds. And so that's just something targets talking about, moments talking about and having over ordered inventories to it, to a goods consumption cycle that is effectively fallen off a cliff. I mean, if you look at it on a three month annualized basis, the real personal consumption expenditures on goods is 0.2%. It's ground to a halt. And this is exactly what target is telling you. When he constantly revise their hurt their earnings estimate floor. Yeah, Here's one from William H. From erosion website. This is a critical question. What do you think dairies about Q2 earnings and particularly about Q3 guidance? Yes. So I mean, look, these companies that they've gotta take down numbers and whether or not they do that. And Q2, Q3, I think, is moot. If you've taken a sort of medium term time horizon, you know one thing that's very incongruent with declining expectations for GDP growth. Obviously declining trends across most economic statistics. You know, whether you look at leading indicators, you know, when you look at even some of the lagging indicators are very much starting to show some real sizable deceleration, even like we're supposed to be in the services sector boom, right? But real surf consumption on services in the US and the most recent print April is only 1.8% on a three month annualized basis. That is not a boom, that's a below trend growth rate. So you really start to see some, some, some, some decline in the growth rates in the economy. And so to me, I think when you talk about the ABI, a spillover impact to corporate earnings, particularly from an all time high and operating margins, 40-year low in productivity, 40-year high and unit labor cost. To me, it's the last major shoe to drop in terms of consensus having to get with the program on sort of the path forward this year. We're not going to get back to this panacea, a state of low interest rates and quantitative easing until we go to the soup that is a significant slowdown in growth. A reduction, significant reduction in corporate profitability estimates, and unlikely potential earnings recession, which I think is a very reasonably high probability. Yeah, terrorist. A great conversation as always as we come to the end of this show, final thoughts, key takeaways that you'd like to leave our viewers with. Yeah, there's no Actually, I have a couple of charts before I wrap up just to I'll be very quick on them. The first ya it burned me. Is this versus this bear markets are common and I'm just going to make this point very clear. Yet. Don't freak out just because we're in a negative environment. I think there's a general eggs around what to do next, what to do next. Everyone's time horizon has shrunk. But with exception of Kathy would whose skills, whose upper favorite names. And oh, by the way, I know I promised be short, but just one quick riddle. What do you call a stock that's down 90%. Don't know. It's a stock that was down 80% got cut in half. And so I just wanna remind everybody the percentage change math associated with these bear markets. Going back to the chart, Brian, bear markets are common. We've lived in an era. If you look at the bottom right of that chart where we're showing the SMP 500 drawdowns. We lived an arrow, we haven't really had to suffer. To me the bear markets, a fifth bounce. She was consistent expanding. We have very low interest rates for an extended period of time. We are no longer in that regime. We are now in a regime that resembles much of this pass a 100 years, which is more volatility in economic statistics, more volatility in inflation statistics, more tighter policy from a monetary policy standpoint, the less globalization, et cetera, et cetera, There's just more friction. There's just more headwinds to capital market appreciation. And so I just wanted to remind everyone, if you look at this 100 years of economic history, market history, these things are common. And one final point I'll leave you with is the next chart which is two thousand, two thousand two FOMO when you're integrating arts. So by the way, this is the, this is a charged to studying all the bear market rallies throughout the 2000s, 2000 to bear market market was down three consecutive years in route to getting cut in half, the S and P 500 nasdaq was down 80% peak to trough. You want to save roughly about tin bear market rallies of consequences significance, several of them turning 14, 15, 20 percent from that local low and in route to the market getting cut in half. So my point, that will point I want to make is there's going to be several times throughout this process of the dramatic reduction liquidity we're walking into and potentially significant slowdown in growth that we're likely to observe in the next, call it three to four quarters. There's going to be plenty of times where you think the markets bottom and you want to chase the stocks higher. But just remind yourself, I don't get the FOMO because the foremost, really I you get hurt. It's not the, it's not the initial drawdown. It's the draw down from the FOMO because that's Yigal it, I love it. Critical points about the nature of bear markets in a 100 years of history to back it up, dairy Estelle, Thank you so much for joining us on revision daily briefing. Appreciate you. I appreciate everyone. Thank you. Catch a kitchen next week. And thanks again for watching real vision daily briefing. Andreas steno Larson will be back tomorrow with Tommy thought and have a good afternoon, everyone.