WEBVTT - A Look At Markets, Inflation, And Bank Earnings 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.760 at Bloomberg dot com slash podcast. I want to bring 0:00:21.800 --> 0:00:24.880 in Brent Shooty. He's the chief investment strategist over at 0:00:24.920 --> 0:00:29.440 Northwestern Mutual Wealth Management. They got two five billion dollars 0:00:29.480 --> 0:00:32.559 in retail assets under management. Brent, I love the way 0:00:32.640 --> 0:00:36.880 you guys have been writing about UM the market about 0:00:36.880 --> 0:00:40.000 investors by dividing them into three camps. You've got the 0:00:40.240 --> 0:00:44.159 too much camp worried about UM you know this inflationary boom, 0:00:44.280 --> 0:00:47.040 the two little camp worried that I guess growth has peaked. 0:00:47.360 --> 0:00:51.280 And then the too expensive camp UM that is concerned 0:00:51.320 --> 0:00:54.200 about valuations. Let's start there, because we're so deep into 0:00:54.240 --> 0:00:58.040 the e UH season right now of the pe what's 0:00:58.040 --> 0:01:02.720 your view on the value of the market. Well, to me, 0:01:02.920 --> 0:01:04.720 value is a relative term, and so it's not an 0:01:04.720 --> 0:01:07.080 absolute call. And so yes, stocks are more expensive, But 0:01:07.120 --> 0:01:09.000 when you look at it compared to the alternatives the 0:01:09.080 --> 0:01:12.319 tenure treagury, for example, at one fifty and change, they 0:01:12.360 --> 0:01:15.160 still look cheap. In the nineteen twenty Times earnings does 0:01:15.200 --> 0:01:17.800 not appear to be overly expensive, just given us back drop, 0:01:18.200 --> 0:01:20.560 and I do think there aren't areas of the market 0:01:20.600 --> 0:01:22.880 that are cheaper and they're going to benefit from still 0:01:22.880 --> 0:01:26.000 strong economic growth. Things like small camps, things like value stocks. 0:01:26.280 --> 0:01:28.039 I think those areas will do well in the coming 0:01:28.120 --> 0:01:32.080 quarters as economic growth remains strong. So print does that 0:01:32.400 --> 0:01:36.280 suggests that you're perhaps a little bit overweight those types 0:01:36.319 --> 0:01:39.399 of reopening trades or cyclical trades, and perhaps a little 0:01:39.400 --> 0:01:42.679 bit underweight some of the more growthy technical areas or 0:01:42.680 --> 0:01:45.280 healthcare are those types of things. Yeah, we've scared our 0:01:45.319 --> 0:01:47.520 portfolio towards that direction, and so we were much more 0:01:47.560 --> 0:01:50.800 overweight in that area post April of last year, and 0:01:50.800 --> 0:01:52.800 we took it back a bit. But still in general, 0:01:52.840 --> 0:01:55.840 we do think that even tying in the peak commentary, 0:01:56.120 --> 0:01:58.480 I think economic growth is more like a plateau, and 0:01:58.520 --> 0:02:00.360 it's all this talk about stag flash and I think 0:02:00.400 --> 0:02:03.040 ignores the fact that economic momentment is still really strong. 0:02:03.360 --> 0:02:05.080 So you have the six month annualized l a I 0:02:05.200 --> 0:02:07.880 up thirteen point one per cent, which means there's a 0:02:07.920 --> 0:02:10.000 lot of momentum still the economy. If you look at 0:02:10.000 --> 0:02:12.639 the underlying fument fundamentals of the consumer, they are still 0:02:12.639 --> 0:02:15.560 in fantastic shape. And so I think that as you 0:02:15.600 --> 0:02:18.560 continue to see the economic growth remains strong, those areas 0:02:18.560 --> 0:02:21.200 of the market do much better when economic growth is strong. 0:02:21.320 --> 0:02:24.639 In here now technology is more of a secular grower. Um. 0:02:24.680 --> 0:02:26.160 I just think it takes a little bit of pause 0:02:26.240 --> 0:02:28.560 here to reflect the fact that you do have some 0:02:28.600 --> 0:02:31.480 reopening going on, you do have some strength and cyclical 0:02:31.480 --> 0:02:33.799 areas like energy stocks, and I think that's the way 0:02:33.800 --> 0:02:36.080 that we're gonna move forward in the coming quarters. People 0:02:36.080 --> 0:02:39.280 have been defining stagflation in ways that I never would 0:02:39.320 --> 0:02:42.600 have thought of. Um. You know, as as a kid 0:02:42.600 --> 0:02:46.480 who grew up in the seventies, I always learned it 0:02:46.560 --> 0:02:52.240 was contraction in growth and uh and uh, you know, 0:02:52.320 --> 0:02:55.600 runaway inflation, the likes of which we experienced around the 0:02:55.639 --> 0:03:00.359 time of the oil shortages. Um, what we're what we're 0:03:00.400 --> 0:03:02.760 hearing now is people are thinking growth is not going 0:03:02.800 --> 0:03:05.519 to be enough, only three or four percent, which is 0:03:05.560 --> 0:03:09.240 far from contraction, whereas inflation we're actually seeing measured at 0:03:09.280 --> 0:03:12.200 more than five. Are you concerned about inflation? Does it? 0:03:12.840 --> 0:03:17.040 I mean I heard the term today persistent le transitory, 0:03:17.120 --> 0:03:19.720 and I thought that was just there you go, Um, 0:03:20.400 --> 0:03:23.760 are you concerned about inflation? Yeah, so this is something's 0:03:23.880 --> 0:03:27.160 waning about and something we've been hedging against and actually 0:03:27.280 --> 0:03:29.480 are recommending to own commodities and tips and have been 0:03:29.560 --> 0:03:32.640 for some time. And so inflation to me, during this 0:03:32.680 --> 0:03:34.600 cycle is going to be more of a worry. So 0:03:34.639 --> 0:03:36.600 you think about the last economic cycle, we woke up 0:03:36.600 --> 0:03:39.440 every day and we wondered about deflation. I think this 0:03:39.520 --> 0:03:41.960 cycle is going to be the opposite, because policy makers 0:03:41.960 --> 0:03:44.160 are going to continue to push on demand. The question 0:03:44.200 --> 0:03:47.560 will be can supply keep up with it? Right now? 0:03:47.680 --> 0:03:50.240 I do believe this is transitory, but my definition, I 0:03:50.240 --> 0:03:52.720 think is perhaps a bit different than others. They think 0:03:52.760 --> 0:03:56.080 of transitory only as time. I think of it as 0:03:56.240 --> 0:03:58.840 what is the underlying root cause? And to me, you 0:03:58.880 --> 0:04:01.920 still have labor markets black, you still have manufacturing capacity 0:04:01.960 --> 0:04:05.400 slack that I think will come into the into kind 0:04:05.400 --> 0:04:07.480 of the forefront. Here. You're going to see people have 0:04:07.560 --> 0:04:11.040 to come back to work because extended unemployment benefits are ending. Um, 0:04:11.040 --> 0:04:13.520 you're gonna see some of these supply chains begin to heal. 0:04:13.760 --> 0:04:16.080 You're seeing some actions right now being taken to do so, 0:04:16.360 --> 0:04:17.960 and certainly it's going to stick around for a while. 0:04:17.960 --> 0:04:19.719 But I don't think this has got the permanent type, 0:04:19.960 --> 0:04:22.760 because I do think that as covid um cases hopefully 0:04:22.760 --> 0:04:25.039 continue to roll over, I think you'll see ports open 0:04:25.200 --> 0:04:27.240 more often. I think some of the supply chains will 0:04:27.279 --> 0:04:29.039 come back to normal. You're certainly going to see a 0:04:29.040 --> 0:04:32.039 push back more from the good side, which is what 0:04:32.160 --> 0:04:35.800 is imported back to service sector spending, as people come 0:04:35.800 --> 0:04:38.800 back on public once again. I'll give you an anecdotal 0:04:38.839 --> 0:04:41.599 point on inflation. A gallon of gas in New York 0:04:41.600 --> 0:04:44.320 City now is north of five dollars. That's the first 0:04:44.320 --> 0:04:46.760 time that's been there in about seven years. So, uh, 0:04:46.800 --> 0:04:48.599 that's inflation for a lot of folks that are looking 0:04:48.640 --> 0:04:50.960 to fill up their car. So, Brent, talk to us 0:04:50.960 --> 0:04:53.159 about the Federal Reserve here. You know, a lot of 0:04:53.160 --> 0:04:55.800 observers I think, say, hey, this Fed has done a 0:04:55.880 --> 0:04:59.880 pretty darn good job here. Are you confident that this 0:05:00.040 --> 0:05:02.480 that is going to navigate this tapering and these rate 0:05:02.480 --> 0:05:05.200 increases in a way that a week, you know, not 0:05:05.400 --> 0:05:09.240 shocking on a negative basis to the markets. Yeah, I mean, 0:05:09.240 --> 0:05:10.640 I think that's where they're lined up. They want to 0:05:10.680 --> 0:05:12.600 try to do everything that possibly can to get more 0:05:12.600 --> 0:05:14.520 economic growth and to get those people that are still 0:05:14.520 --> 0:05:17.200 in the sidelines back into the labor market. And I 0:05:17.200 --> 0:05:19.280 think they're gonna be as patient as they possibly can be. 0:05:19.600 --> 0:05:21.919 You're seeing that right now. And it's funny you mentioned 0:05:21.960 --> 0:05:24.159 talking about Hockey she Fed. I've heard that term a 0:05:24.160 --> 0:05:26.320 few times. I heard it used yesterday for someone who 0:05:26.400 --> 0:05:30.560 moved their rate hikes into November of next year. Yeah, 0:05:30.560 --> 0:05:33.279 that's hardly hawkish. Um, You're talking about a FED that 0:05:33.279 --> 0:05:34.680 put on a sheet of paper and I know it's 0:05:34.680 --> 0:05:37.640 just the dot plot. They put one point seven is 0:05:37.640 --> 0:05:41.880 their medium expected rate at the end of If inflation 0:05:41.920 --> 0:05:44.480 is two point one, then that means we're still gonna 0:05:44.480 --> 0:05:47.880 have negative real rates in which is still stimulative. Now 0:05:47.920 --> 0:05:50.200 that's not a promise by any means, but I don't 0:05:50.240 --> 0:05:52.320 I do think it shows that the FED, despite all 0:05:52.360 --> 0:05:54.159 the talk that's out there right now, is going to 0:05:54.160 --> 0:05:56.520 do everything that possibly can to be measured in patient. 0:05:56.960 --> 0:06:00.320 And they certainly have a viewpoint towards the market because 0:06:00.440 --> 0:06:04.160 remember at the zero bound, the way they impact the economy. Um, 0:06:04.240 --> 0:06:06.279 they don't have much downside for room to lower rates. 0:06:06.440 --> 0:06:09.679 Where they impact it is by um lowering treasury yields 0:06:09.680 --> 0:06:13.039 longer term, which pushes people towards equities. And so certainly 0:06:13.080 --> 0:06:15.000 if you think back to nineteen, they were expecting to 0:06:15.080 --> 0:06:17.920 hike three times and they lower grip three times, not 0:06:18.000 --> 0:06:20.760 because their forecast changed, but because they quote unquote, we're 0:06:20.760 --> 0:06:23.240 listening to the market, all right, Brent, thank you so 0:06:23.320 --> 0:06:26.520 much for joining us. Always appreciate getting your perspective. Brent Shooty, 0:06:26.720 --> 0:06:31.560 chief investment strategists for Northwestern Mutual Wealth Management, joining us 0:06:31.600 --> 0:06:34.240 on the phone from Milwaukee, giving us his thoughts, continuing 0:06:34.800 --> 0:06:38.279 to be bullish on these markets going forward, and again 0:06:38.800 --> 0:06:40.720 major move up in the markets today, the S and 0:06:40.760 --> 0:06:47.760 P up one point three. This is Bloomberg. We've still 0:06:47.760 --> 0:06:50.280 got a lot coming up in the program. Liz Young 0:06:50.400 --> 0:06:53.840 joins us chief investment strategists from Sophi to get us 0:06:53.839 --> 0:06:57.320 her market outlook and investment strategy. And what a day 0:06:57.400 --> 0:07:00.320 to do it on as I was saying Liz or earlier, 0:07:01.040 --> 0:07:03.720 the best day that we've had in markets since July. 0:07:04.600 --> 0:07:08.040 Because the E is rising in the price earnings ratio. 0:07:08.120 --> 0:07:12.960 What's your outlook in terms of value valuations. Yeah, hi, 0:07:13.080 --> 0:07:15.640 I'm so excited to be here. Um, it's a great 0:07:15.760 --> 0:07:18.640 day in the market. I actually just came out with 0:07:18.680 --> 0:07:22.320 a column today that says my outlook for the fourth 0:07:22.360 --> 0:07:25.480 quarter is maybe not quite as rosy. So as much 0:07:25.480 --> 0:07:27.960 as I love a rally in the markets, especially a 0:07:28.040 --> 0:07:30.520 day like today where we've had quite a few days 0:07:30.520 --> 0:07:33.280 of down or maybe flat markets, UM, it's nice to 0:07:33.320 --> 0:07:36.560 see this, and especially after we get positive earnings news. 0:07:36.560 --> 0:07:39.240 So um outlook though into the end of the year. 0:07:39.760 --> 0:07:42.400 Here a couple of points I would make. We made 0:07:42.480 --> 0:07:45.920 our most recent high on September two in the S 0:07:46.000 --> 0:07:49.160 and P and we haven't seen another new high since then. 0:07:49.240 --> 0:07:51.960 So this is actually a pretty long stretch, um, that 0:07:52.000 --> 0:07:54.720 we've gone without a new high. Relatively speaking, We're used 0:07:54.720 --> 0:07:56.640 to hitting new highs. It seemed like on a weekly 0:07:56.680 --> 0:07:59.240 basis for a while there, so we've we've had a 0:07:59.320 --> 0:08:02.200 longer stress to without a new high, and I don't 0:08:02.240 --> 0:08:04.600 think that we're going to see another new one into 0:08:04.640 --> 0:08:06.360 the end of the year. But that does not mean 0:08:06.720 --> 0:08:08.680 that we are going to be negative. So if we 0:08:08.760 --> 0:08:10.680 just look at some of the numbers here, if we 0:08:11.160 --> 0:08:13.600 and the SMP went back down and just kind of 0:08:13.640 --> 0:08:16.800 sniffed at the two day moving average. That would be 0:08:16.800 --> 0:08:18.880 about five and a half percent from where we are 0:08:18.960 --> 0:08:21.800 right now. Even if we ended the year at that 0:08:21.840 --> 0:08:24.280 two d day moving average, we'd still be up about 0:08:24.320 --> 0:08:27.120 eleven for the calendar year. So this has been a 0:08:27.160 --> 0:08:30.000 tremendously strong year. It's been. It was a tremendously strong 0:08:30.040 --> 0:08:32.840 first half and then obviously a rotation, but still a 0:08:32.880 --> 0:08:36.200 strong summer. So a lot of the games have happened 0:08:36.280 --> 0:08:38.240 in the earlier part of the year. I think that 0:08:38.280 --> 0:08:40.840 there are some headwinds in the market, the first of 0:08:40.920 --> 0:08:43.600 which is that we do have a little bit of 0:08:43.600 --> 0:08:46.400 a slowing and momentum on that macro data. We've seen 0:08:46.440 --> 0:08:49.760 a lot of GDP forecasts be revised downward. We have 0:08:49.880 --> 0:08:52.520 earnings coming in reasonably strong. But I think what we're 0:08:52.520 --> 0:08:54.400 going to start hearing once we get past these bank 0:08:54.480 --> 0:08:57.280 earnings is from the companies that are dealing with supply 0:08:57.360 --> 0:09:00.360 chain issues, that are dealing with inflationary issue you that 0:09:00.360 --> 0:09:03.440 maybe they haven't entirely passed through yet, and they're dealing 0:09:03.480 --> 0:09:06.199 with labor shortages. And the big issue that I think 0:09:06.200 --> 0:09:08.680 we're going to face this year that's different from last 0:09:08.760 --> 0:09:11.520 year is that in the title of my column this 0:09:11.559 --> 0:09:14.160 week is no ace left in the hole, is that 0:09:14.200 --> 0:09:17.320 we don't have a catalyst on the calendar. So last 0:09:17.360 --> 0:09:20.400 year we got past the presidential election, that was a positive. 0:09:20.679 --> 0:09:23.360 We got really positive vaccine news about a week after that, 0:09:23.760 --> 0:09:26.720 another huge positive that drove a market rally. I don't 0:09:26.720 --> 0:09:28.280 know that we're going to have a catalyst like that 0:09:28.400 --> 0:09:31.560 this year, Liz. You know, you mentioned how we're hitting, 0:09:31.720 --> 0:09:34.000 you know, seemingly new highs on a daily basis a 0:09:34.000 --> 0:09:36.480 little bit earlier in this in this quarter here, it 0:09:36.520 --> 0:09:38.480 feels like for a lot of the bulls, they come 0:09:38.520 --> 0:09:40.640 back and they're just saying, basically, this is a market 0:09:40.960 --> 0:09:43.920 that just has to move higher or will move higher 0:09:43.960 --> 0:09:47.520 because there really are no other places to put meaningful 0:09:47.559 --> 0:09:50.600 capital to work. That that's not a very rigorous analysis, 0:09:50.720 --> 0:09:54.000 but boy, it certainly seems to be right on many days. 0:09:54.240 --> 0:09:57.160 But you're not buying that, are you? No? I mean 0:09:57.200 --> 0:09:59.400 I am buying that. And so I want to be clear, 0:09:59.480 --> 0:10:01.400 even if we don't hit new highs and to the 0:10:01.480 --> 0:10:03.560 end of the year, I'm not saying get out of equities, 0:10:03.559 --> 0:10:08.160 because that's absolutely true. There isn't another good option. And 0:10:08.360 --> 0:10:11.719 even if the ten year rises up, let's say it 0:10:11.720 --> 0:10:14.640 goes above two, it's still not that good of an 0:10:14.640 --> 0:10:18.480 option compared to equities because you don't have price appreciation 0:10:18.520 --> 0:10:21.679 potential that matches that of the equity market. And even 0:10:21.760 --> 0:10:25.880 a ten year yielding two isn't that much above a 0:10:25.920 --> 0:10:28.960 lot of dividend paying stocks. So you can still get 0:10:29.000 --> 0:10:32.240 dividends in the equity market and more price potential in 0:10:32.280 --> 0:10:35.240 the equity market. I absolutely think that that's where investors 0:10:35.240 --> 0:10:38.080 should be. I just think that we've seen much of 0:10:38.120 --> 0:10:42.199 the strong gains for the year already this year. So 0:10:43.000 --> 0:10:45.800 if you're an investor and you have money on the sidelines, 0:10:45.840 --> 0:10:48.480 if you have cash on the sidelines, then the question becomes, Okay, 0:10:48.920 --> 0:10:51.319 if the question isn't should I put it in stocks? 0:10:51.360 --> 0:10:53.640 I mean, yes, you should put it in stocks, But 0:10:53.760 --> 0:10:56.480 then the question is where in stocks? Right? And what 0:10:56.520 --> 0:10:59.600 I would say to that is, let's say we go 0:10:59.679 --> 0:11:01.760 down a little bit further from here. Who knows what 0:11:01.760 --> 0:11:03.439 the pattern is going to look like. But if if 0:11:03.440 --> 0:11:05.040 I'm right and we go down a little bit further 0:11:05.080 --> 0:11:08.040 from here, and then we have maybe a mediocre bounce 0:11:08.160 --> 0:11:10.160 into the end of the year, I think it is 0:11:10.200 --> 0:11:13.679 those cyclical sectors that are going to lead in that bounce. 0:11:14.120 --> 0:11:16.240 So here's another This is I don't want to get 0:11:16.280 --> 0:11:18.480 too in the weeds here, but if you look at 0:11:18.480 --> 0:11:21.920 what's happened through summer and rallies that were driven through summer, 0:11:22.160 --> 0:11:24.680 they were really driven by those big cap tech stocks, 0:11:24.760 --> 0:11:26.920 or at least the the top heavy part of the 0:11:27.040 --> 0:11:30.480 SMP five hundred. If those aren't the stocks that are 0:11:30.559 --> 0:11:33.120 leading us, all the other stocks have to work a 0:11:33.160 --> 0:11:36.440 lot harder in order to bring the overall index up 0:11:36.600 --> 0:11:40.120 because they make up a smaller percentage. So if those 0:11:40.120 --> 0:11:43.040 cyclical sectors do well into the end of the year, 0:11:43.640 --> 0:11:45.520 it's still going to feel like a lot of hard 0:11:45.559 --> 0:11:48.319 work to get there. But I would be looking at financials, 0:11:48.360 --> 0:11:50.800 I'd be looking at industrials, I would be looking at 0:11:50.800 --> 0:11:53.959 dividend paying stocks, because there is some inflation protection built 0:11:53.960 --> 0:11:56.679 in in the overall market, and we just got about 0:11:56.679 --> 0:12:00.520 thirty seconds left. I don't want to take your Garth 0:12:00.520 --> 0:12:02.800 Brooks quote too far, but if all your cards are 0:12:02.840 --> 0:12:04.520 on the table and you've got no ace left in 0:12:04.520 --> 0:12:06.080 the holes, I mean, we don't have to worry about 0:12:06.080 --> 0:12:11.640 too much volatility or start Garth quote as far as 0:12:11.679 --> 0:12:14.600 you want. I've got Guarth quotes all day long. Um, 0:12:14.760 --> 0:12:18.520 so I think I think there is more volatility that 0:12:18.559 --> 0:12:21.080 would come. But here's the thing. Volatility is not a 0:12:21.120 --> 0:12:24.520 bad thing. And volatility happens when we're going through a rotation. 0:12:24.920 --> 0:12:27.400 So that the line about all my cards are on 0:12:27.480 --> 0:12:30.880 the table, that's sort of there isn't any really big 0:12:31.080 --> 0:12:34.400 positive news catalyst coming right. All we have to do 0:12:34.480 --> 0:12:36.920 now is kind of trudge through the mud, hope that 0:12:36.960 --> 0:12:39.560 earnings come in strongly and that nothing goes wrong. I 0:12:39.559 --> 0:12:42.120 think the FED continues to taper and we have to 0:12:42.160 --> 0:12:45.160 really hand the baton back to fundamentals. Liz, thank you 0:12:45.160 --> 0:12:47.079 so much for joining us. We really appreciate you taking 0:12:47.080 --> 0:12:50.440 the time here, Liz Young, Chief Investment Strategists for so 0:12:50.640 --> 0:12:55.480 far and reminding us about all of the great lyrics 0:12:55.760 --> 0:12:58.680 from out of Brooks. I just you know, went through 0:12:58.720 --> 0:13:01.040 back through what the Cattle when I was reading her notes, 0:13:01.080 --> 0:13:03.679 and uh, the double live album is so good. I'm 0:13:03.679 --> 0:13:07.920 gonna go back and listen to it later on. All right, 0:13:07.960 --> 0:13:11.080 We had some Mr James Gorman on our radio and 0:13:11.080 --> 0:13:14.559 TV airways just earlier this morning, and he generated a 0:13:14.600 --> 0:13:16.640 lot of headlines on the Bloomberg terma. One of them 0:13:16.720 --> 0:13:21.720 is he's not buying this whole inflations transitory thing so much. 0:13:21.760 --> 0:13:23.440 And uh, I'm want to bring that up with our 0:13:23.480 --> 0:13:26.880 next guest, Pete Earl, economist at the American Institute for 0:13:26.920 --> 0:13:30.920 Economic Research located in Massachusetts. So Pete again, James Gorman's 0:13:30.920 --> 0:13:34.320 CEO of Morgan Stanley, kind of saying he's seeing some 0:13:34.400 --> 0:13:38.240 more pronounced and profound inflation out there in the economy. 0:13:38.720 --> 0:13:42.320 How do you see it? Good morning? Yeah, thanks for 0:13:42.320 --> 0:13:45.559 having me, so um, yeah, I mean so so. First, 0:13:45.559 --> 0:13:48.720 I find the whole transitory story a little irksome, to 0:13:48.720 --> 0:13:52.599 be honest, because first, because we had Powell earlier this 0:13:52.640 --> 0:13:55.080 year Chairman Palace that he didn't see any unwelcome inflation 0:13:55.480 --> 0:13:57.320 in April, and he said we were likely to see 0:13:57.559 --> 0:14:00.600 more pressure and they would be temporary. So it's a 0:14:00.640 --> 0:14:02.840 somewhat self serving narrative at this point. But the more 0:14:02.880 --> 0:14:05.480 important thing I think is that anyone who knows or 0:14:05.559 --> 0:14:08.120 studied monetary economics knows that we have what are called 0:14:08.120 --> 0:14:10.600 injection effects, right there can't a lot effects and other 0:14:11.080 --> 0:14:13.400 um schools of beacon offers call them, and it means 0:14:13.440 --> 0:14:18.119 that the disproportioned impact that new money has makes permanent distortions. 0:14:18.320 --> 0:14:21.600 So even if this inflation is transitory, whether that's in 0:14:21.640 --> 0:14:26.280 three months or five years, the higher prices, paid, allocation decisions, 0:14:26.280 --> 0:14:28.720 all that sort of thing and other outcomes are gonna 0:14:28.720 --> 0:14:31.960 be baked in. They're gonna be permanent. Um. I'm way 0:14:31.960 --> 0:14:34.280 more concerned if we're gonna bring up the ugliest word 0:14:34.360 --> 0:14:37.080 in economics and one of the ugliest words in English, 0:14:37.200 --> 0:14:40.920 stag inflation. I'm way more concerned about the inflation than 0:14:40.960 --> 0:14:46.520 the stag you know, I'm totally feeling you that. Um. 0:14:46.560 --> 0:14:49.800 The transitory thing was annoying, but it's also been a 0:14:49.840 --> 0:14:52.640 gift for people interested in economics. I took a deep 0:14:52.640 --> 0:14:56.840 dive into Kine's long run again the other day, UM, 0:14:56.880 --> 0:15:00.880 just just for fun, because you know, in the long run, um, 0:15:00.920 --> 0:15:04.400 everything is transitory. Also, Mohammad al Harrian pointed out today 0:15:04.440 --> 0:15:10.680 that he hurt someone, um, someone serious say persistently transitory, 0:15:10.800 --> 0:15:14.800 which I really appreciated. UM. On on the stagflation side 0:15:14.840 --> 0:15:17.440 of things, Deutsche Bank had a great report out a 0:15:17.440 --> 0:15:21.560 couple of days ago showing that UH clients had at 0:15:21.640 --> 0:15:25.640 least three different definitions for what stagflation is how would 0:15:25.680 --> 0:15:30.000 you define stagflation? Yes, I mean the basic definition is 0:15:30.280 --> 0:15:33.680 again the really nasty portmanteau, is that we have stagnation, 0:15:33.720 --> 0:15:36.400 which is of course slowing or negative growth, and we 0:15:36.440 --> 0:15:39.640 have inflation, and there's a there's a I think there's 0:15:39.640 --> 0:15:43.200 some pretty good arguments against stagflation occurring right now. Um, 0:15:43.320 --> 0:15:46.160 but I also think that what stagflation looks like today 0:15:46.280 --> 0:15:48.160 for those of us who were in my case of 0:15:48.240 --> 0:15:50.440 kid in the seventies, you know, I don't think even 0:15:50.440 --> 0:15:55.280 if we did have definition, uh, definitional stagflation, it doesn't 0:15:55.280 --> 0:15:58.120 mean we're gonna see eighteen or twenty percent interest rates. 0:15:58.120 --> 0:16:01.000 I mean from here six percent interest rates are elevated 0:16:01.280 --> 0:16:04.040 and growth of two point five percent is down. So 0:16:04.280 --> 0:16:05.960 it doesn't mean it's better, but it does mean that 0:16:06.000 --> 0:16:08.560 I think people are looking at the seventies and they're 0:16:08.560 --> 0:16:10.080 thinking of it the same way they think of disco 0:16:10.160 --> 0:16:12.800 balls as they do. You know, the actual economic numbers, 0:16:12.840 --> 0:16:17.000 it would look different. But um, basically, you know, right now, 0:16:17.200 --> 0:16:22.200 households have and end businesses have very high levels of cash, 0:16:22.280 --> 0:16:26.040 actually record levels in some cases, and publicly traded companies 0:16:26.080 --> 0:16:29.280 have highest the highest operating margins they've had in almost 0:16:29.320 --> 0:16:33.040 thirty years. Um. So both of those speak to a 0:16:33.120 --> 0:16:36.600 level of savings and potential consumption that I think puts 0:16:36.960 --> 0:16:40.080 the idea of slowing growth to rest, at least at 0:16:40.080 --> 0:16:43.600 the at the current time. Pepe, how about some of 0:16:43.600 --> 0:16:46.600 these global supply chain issues that so many companies in 0:16:46.640 --> 0:16:49.760 so many different industries are experiencing. We hear them on 0:16:49.800 --> 0:16:53.560 these quarterly conference calls, that the management teams talk about them. 0:16:53.840 --> 0:16:56.120 How do you think that's going to impact global growth 0:16:56.600 --> 0:16:59.720 in remainder of this year going into next year. Yeah, 0:16:59.800 --> 0:17:02.440 so it's definitely a drag. But I mean, I think 0:17:02.960 --> 0:17:05.560 what the recent step that was taken and I don't 0:17:05.560 --> 0:17:08.439 I don't think it necessarily needed, um government devention, but 0:17:08.760 --> 0:17:11.640 the fact that the ports are gonna be working seven 0:17:11.680 --> 0:17:15.000 in many cases, um, some of the things being done 0:17:15.000 --> 0:17:17.680 by private firms, which include buying fleets of aircraft, chartering 0:17:17.760 --> 0:17:20.440 or purchasing ships. I think I think that right now 0:17:20.560 --> 0:17:23.240 is the big link that will serve to to to 0:17:23.320 --> 0:17:25.639 sort of relax some of these Uh, if you can 0:17:25.640 --> 0:17:28.280 find anyone to work there, right Yeah. I mean, that's 0:17:28.320 --> 0:17:30.120 that's the big issue, is that we have this great 0:17:30.119 --> 0:17:32.960 reconsideration whereby people are saying that I really enjoy what 0:17:33.040 --> 0:17:35.400 I was doing, you know, can I take some time off, 0:17:35.480 --> 0:17:37.800 retrain myself whatever. I think that's that's an issue too, 0:17:37.800 --> 0:17:40.200 And that's that's very difficult because that's not economics, that's 0:17:40.200 --> 0:17:43.600 that's that's sociological, that's psychological. But I mean what we've 0:17:43.600 --> 0:17:46.280 seen in the last two days and c p I 0:17:46.400 --> 0:17:48.560 and p p I is really what we would would 0:17:48.560 --> 0:17:52.840 expect um the retail prices, the the the five point 0:17:52.840 --> 0:17:54.760 three percent year over here. I think most of that 0:17:55.119 --> 0:17:58.320 it's not really monetary so much as it is shipping problems. 0:17:58.520 --> 0:18:01.240 What we see in pp I and producers where you 0:18:01.280 --> 0:18:04.440 have capital intensive industries where things are produced, they're seeing 0:18:04.520 --> 0:18:07.680 actual inflation, you know, where you have four dollars competing 0:18:07.680 --> 0:18:11.080 for the same number of things, whether it's materials, oil, etcetera. 0:18:11.480 --> 0:18:14.480 That's where I think shipping containers. I think the monetary 0:18:14.480 --> 0:18:18.560 part is shipping containers. Yeah, you know, in one case exactly, 0:18:18.600 --> 0:18:21.040 I mean the CEO Fastenal was talking about how thirty 0:18:21.080 --> 0:18:23.360 five percent of their containers that would normally be sent 0:18:23.400 --> 0:18:26.359 across the country by rail of the United States, that is, 0:18:26.880 --> 0:18:31.159 have to be now manually offloaded and put on eighteen 0:18:31.160 --> 0:18:36.000 wheelers and that quadruples the cost in some cases drives 0:18:36.000 --> 0:18:38.199 it up six times where it would normally be. So 0:18:38.280 --> 0:18:41.080 I thought it was incredibly fascinating. Pete. Great to get 0:18:41.119 --> 0:18:42.399 some time with you. I hope we can get you 0:18:42.440 --> 0:18:45.200 back on again. Pete Earl is an economist for the 0:18:45.240 --> 0:18:51.840 American Institute for Economic Research, coming to us from Great Barrington, Massachusetts. 0:18:52.359 --> 0:19:00.000 This is Bloomberg. Certainly, the hardest working analyst at bloom 0:19:00.000 --> 0:19:03.240 Bring Intelligence this week has to be Alison Williams, Senior 0:19:03.280 --> 0:19:06.240 Global Banks Analysts. She joins us here in interactive Broker 0:19:06.320 --> 0:19:09.720 studio in between bank earnings conference calls and Allison, tons 0:19:09.760 --> 0:19:12.679 of companies reporting this week in your space. You know, 0:19:12.840 --> 0:19:15.040 as I listened to some of the commentary from these 0:19:15.080 --> 0:19:19.240 management teams, they've remain pretty confident in the outbook as well. 0:19:19.359 --> 0:19:23.280 What are your takeaways they do? It's a strong quarter, 0:19:23.680 --> 0:19:28.040 strong equities trading, huge M and A fees. Those are 0:19:28.200 --> 0:19:31.440 sort of the highlights for the banks. And then on that, um, 0:19:31.480 --> 0:19:33.280 you know the other side of the house and interesting 0:19:33.359 --> 0:19:36.000 coming coming in line. I think there's sort of enough 0:19:36.040 --> 0:19:40.680 to hope for in terms of um, you know, green shoots, 0:19:40.880 --> 0:19:44.520 uh for loan's next year. There is some variation in 0:19:44.640 --> 0:19:49.600 results of Bank of America. You can see trading positively today, um, 0:19:49.640 --> 0:19:51.159 you know. And part of this is really just a 0:19:51.160 --> 0:19:54.040 strategy and how they're managing their bound sheet there, you know, 0:19:54.119 --> 0:19:57.760 deploying excess liquidity, so that's helping their not interesting come 0:19:57.800 --> 0:20:01.000 a bit Jamie Diamond saying he's you know, waiting to 0:20:01.080 --> 0:20:05.720 do that um, and so he has a excess cash 0:20:05.720 --> 0:20:08.640 sitting there. So maybe just a little bit different strategies. 0:20:09.000 --> 0:20:10.520 What do you mean by that? The point their liquidity 0:20:10.520 --> 0:20:15.080 in terms of lending money not lending, so basically all 0:20:15.119 --> 0:20:17.760 the money they have because no one's borrowing, so all 0:20:17.800 --> 0:20:20.280 the money they have so key. So if you think 0:20:20.280 --> 0:20:23.480 about their bounty, we have tremendous deposit growth, we've had 0:20:23.520 --> 0:20:27.840