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- [00:00]
IBM Representative
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM,
- [00:33]
Bob Michael
Bloomberg Audio
- [00:34]
Podcast Host
Studios Podcasts, Radio news We are thrilled
- [00:39]
Interviewer
to bring you Bob Michael Global head of fixed income JP Morgan asset management the real yield out of 2.11%. I haven't done a standard deviation study. When does a higher real yield impinge on the American economy and on industry in America?
- [00:57]
Bob Michael
Well, I would argue right now it's already starting to have an impact because it was only a week ago that we came out of the FOMC meeting expecting a couple rate cuts. And you looked at the labor market that was their primary concern for good reason. It seemed a bit soft. Now you're paying a lot more to fill up your automobiles and if you're a business, your input costs for energy has gone up. I would say it's having an impact
- [01:26]
Podcast Host
right about now if that is the case. Certainly for a lot of folks, they're starting to feel it. How does the Fed react to that? There's really not a whole lot they can do, is there?
- [01:37]
Bob Michael
I think the problem is at these levels there's no obvious solution because even ourselves with $100 oil, we don't see recession. We see growth slowing down a lot of from where we had it. Inflation going up a little bit. Then they just have to wait and see what cracks first. Does the labor market come under a lot of pressure and unemployment go up or do they see energy prices pass through to finished goods and services and consumers still buying and demanding wage price spirals?
- [02:12]
Interviewer
David Rosenberg in Toronto publishes moments ago Rosenberg Research Quote, still no market panic in equities even with a Vix out of 29.53. How do you measure in? Is there panic in the Bob Michael world? I mean price down, yield up, how does it, you know, equity panic, how does that work in the bond space?
- [02:35]
Bob Michael
It's. Well, there are also volatility indicators in the bond market and they've actually been been muted. So it's been a surprisingly orderly sell off a little bit at a time. A lot of confidence that you have an administration looking for an off ramp. They'll find One, they watch the markets. They know the midterm elections are coming up soon. They, they have to figure out how to extricate themselves from the Middle east. And that's what the market's hanging its hat on.
- [03:14]
Podcast Host
So the Fed has a little bit of leeway. The US economy, we are a net exporter of oil, but boy, I guess we're all learning how exposed other parts of the world are to this pinch in Mid east oil. How do you expect other central banks around the world to react here?
- [03:30]
Bob Michael
It's strange, right, because this all started with us being told that 20% of oil passes through the Strait of Hormuz. So you say, okay, $60 a barrel, let's go to $72 a barrel. Maybe a little premium in there. You're up at 80. Not you're going right to 100. And hanging out there. And expectations. I saw one could be $200 a barrel. I think that's a bit extreme. I think by the time you get to 120 to 150, you'll create a tremendous amount of demand destruction. So it's a bit puzzling that you're there. But unlike the Fed, which has a dual mandate, they have to watch the labor market as well as inflation. The ECB and the bank of England have single mandates. They have to watch inflation. And there's no differentiation between core and headline. All they know right now is headlines going up a lot. Hence they're talking hawkish. You would expect the ECB to hike rates once or twice in here. We'll watch for the bank of England.
- [04:38]
Interviewer
You have a sterling academics, which goes back as far as Persia. Your work in Greek and Latin with all of your academics at Penn, and your work, of course, driving the bond ship for Mr. Diamond, the cultural overlay here of Persian patients. What I keep reading in informed articles is these people are patient. Is that what you would, would you agree with that Iran will be patient beyond anything?
- [05:09]
Bob Michael
Well, if you look at their position, there's little else they can do. A lot of the infrastructure in their country has been destroyed, and yet somehow they're able to control the global supply of oil by controlling the Strait of Hormuz with a fleet of drones, despite all the military might of, of the West. And I think this is what the market's starting to get concerned about. The administration may want an off ramp, but the Iranians don't need to give him one.
- [05:48]
Interviewer
It's that, that simple. Bob, Michael, thank you so much.
- [05:50]
Podcast Host
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- [06:17]
IBM Representative
Lenovo.