Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Ley. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg Termament. All
Speaker 1: of those things that we're supposed to be the story
Speaker 1: this year, we're not. The question is do those actual
Speaker 1: rotations start to take hold in the your head. Let's
Speaker 1: stop that conversation now with Patrick Comstrong, chief investment officer
Speaker 1: at bloo REMI well, Patrick, got to catch up with you, sir.
Speaker 1: The things that are set to come under pressure into
Speaker 1: twenty two Patriot. What pockets to this market are you avoiding? Um?
Speaker 1: I think it's not going to be here where you
Speaker 1: want to try to get rich. I think for the
Speaker 1: last three years we've had massive liquidity in the system.
Speaker 1: We've had central banks buying bonds, trillions of bonds, and
Speaker 1: it's going to be an environment where liquidity is slowly
Speaker 1: taken out of the system. And I think the meme stocks,
Speaker 1: the high growth no earning stocks, those types of story stocks,
Speaker 1: they They've come under pressus in November, and I think
Speaker 1: that's going to continue. I think if you're making an
Speaker 1: investment for two you want to have a valuation thesis.
Speaker 1: At least you have to understand that this company is generating, casual,
Speaker 1: generating earnings. And it's not ruling out all tech companies.
Speaker 1: But I think the companies that are at the most
Speaker 1: extreme multiples that they're going to be category killers. But
Speaker 1: that's five years out. I think those are going to
Speaker 1: come under pressure as liquidity gets removed from the system.
Speaker 1: But what about the other tech companies that some may
Speaker 1: put in the kind of quality basket Patrick, the likes
Speaker 1: of Apple, which is approaching three trillion dollars in valuation,
Speaker 1: that are consistently strong earnings growers to bet against the
Speaker 1: U S. And I know you're underweight the US. Are
Speaker 1: you also saying that you expect some of those large
Speaker 1: heavyweights to start lagging. Where I've got my U S
Speaker 1: exposure is those large heavy wait, so I'm very comfortable
Speaker 1: with Apple. We actually sold Apple earlier in the year
Speaker 1: in February, which has looked like good timing. We did
Speaker 1: it just before their earnings, but we bought it again
Speaker 1: about a month ago, So I'm back into Apple. I
Speaker 1: own Meta, I own alphabet Um, so my US exposures
Speaker 1: underweight versus the MSCI worldwide. But I'm taking it with
Speaker 1: the big cap tech companies because just the cash flow
Speaker 1: is enormous. Their multiples aren't cheap, but totally defendable or
Speaker 1: thirty times multiple or thirty times earnings for the kind
Speaker 1: of growth and profit margin they generate, I totally can justify,
Speaker 1: so I feel comfortable to own them. But there's many
Speaker 1: industries where like for like um stocks just trade at
Speaker 1: thirty premium if they're listed in the United States versus
Speaker 1: if they're listed in Japan or if they are listed
Speaker 1: in Europe. So the other more traditional sectors that aren't
Speaker 1: tech orientated is where I'm overweight to other countries. Yeah,
Speaker 1: I was just gonna ask. I mean, I'm sure you're
Speaker 1: not betting against the United States, but really on other
Speaker 1: countries where you see undervalued assets, where is that? Well,
Speaker 1: I've been talking about it for a year and the
Speaker 1: companies have performed incredibly well. And I think every time
Speaker 1: I've been on your show for the last fifteen months
Speaker 1: or so, I talked about Muller Mares capeg Lloyd, and
Speaker 1: I don't get my head around they're trading at four
Speaker 1: times earnings. How negative do things have to get for
Speaker 1: shipping rates to really make it be a four times
Speaker 1: earnings on Muller Mares. So it's probably up sixty percent
Speaker 1: this year, but earnings are growing as fast as the
Speaker 1: share price is growing, and it's just incredibly cheap our
Speaker 1: Salur mattel Um. I do think infrastructure spend is going
Speaker 1: to happen in the United States. I think Europe school
Speaker 1: to get around to infrastructure spend. Japan's doing it as well.
Speaker 1: I think steel is very cheap. Company like this is
Speaker 1: trading at six times earnings. So there's companies that are
Speaker 1: domiciled in Europe, their global companies benefiting from the global recovery,
Speaker 1: but they're just trading at very low multiples and they
Speaker 1: actually have very high earnings growth potential in my opinion, Patrick,
Speaker 1: of those companies, the Likes and Modern Masque, some of
Speaker 1: the minors, some of the energy players would have seen
Speaker 1: huge amount for their goods and the underlying product or
Speaker 1: services a great gain in price. Have you seen the
Speaker 1: corresponding discipline when it comes to building out capacity, Patrick,
Speaker 1: because that's been the worry of what's happening in the
Speaker 1: shipping industry in a previous few decades, what's happened in
Speaker 1: mining and energy in the previous few decades as well.
Speaker 1: Is that what's different this time around, Patrick, into twenty two,
Speaker 1: that they haven't made those big coals, those big investments
Speaker 1: into capacity that could haunt them in years to count.
Speaker 1: They haven't. They're producing tons of cash flow, so it's
Speaker 1: always a risk when the CEO has got so much
Speaker 1: cash doesn't know what to do with it, expanding investing
Speaker 1: assuming that these profits and the freight rates will stay
Speaker 1: where they are. None of the CEOs are talking like that.
Speaker 1: There's another who brie about this is going to last forever.
Speaker 1: They know this is a cyclical windfall that they're really monetizing.
Speaker 1: I think it will probably lead to some consolidation in
Speaker 1: the industry, which may streamline capacity. It will give more
Speaker 1: pricing power, and I think those kind of expenditures make sense.
Speaker 1: You can preserve your profit margins with that. I don't
Speaker 1: think a big, massive build out is what any CEO
Speaker 1: is talking about of new shipping U So they're being built,
Speaker 1: but these take years of lead time as well. Patrick,
Speaker 1: I noticed as well. You say you want to own
Speaker 1: volatility in the year ahead, Why and how specifically well
Speaker 1: queie what it does, It's unclear. No one knows unequivocally
Speaker 1: what QUEI does for the economy. It probably gives it
Speaker 1: a boost to give some confidence when times are very scary.
Speaker 1: QUEI basically brings out some animal spirits and provoke some investment.
Speaker 1: But what it does is it suppresses volatility, and as
Speaker 1: QUEI gets removed, the market forces will just be allowed
Speaker 1: to react to scary things that happen when something happens.
Speaker 1: In the past, used to get a sell off, it
Speaker 1: would be a buying opportunity. Over the last few years,
Speaker 1: buying opportunities last in the spans of days rather than months.
Speaker 1: So I do think there'll be some sell offs that
Speaker 1: maybe will last a few months, where you get an
Speaker 1: official correction and some things then get too cheap and
Speaker 1: that provokes some buyers, but there won't be the wall
Speaker 1: wall of money chasing every single sell off. And I
Speaker 1: think when you can have dips, that's the definition of volatility,
Speaker 1: and I don't think those will be suppressed as much
Speaker 1: as QUI gets removed in the first quarter of next year.
Speaker 1: Patrick I just want to build on what you think
Speaker 1: will spark the disruption. What we saw in the previous psycho.
Speaker 1: What we saw was ultimately no real disruption until real
Speaker 1: rates got through positive one percent, and so we actually
Speaker 1: started to see some balance sheet reduction and not just
Speaker 1: the unwind of KWEI and NETT purchases. Patrick, you send
Speaker 1: that could happen this time around before we get to
Speaker 1: those kind of points. Well, they're bound to be before
Speaker 1: we get to this kind of point. But the thing
Speaker 1: that's kept me in equities it's there's three pillars, and
Speaker 1: thank god I look at them because I worry about
Speaker 1: valuations and the S and P five hundreds at three
Speaker 1: point five times sales, it's never been higher than it
Speaker 1: is today. But massive liquidity, negative real yields and earning
Speaker 1: his growth. While those pillars remain in place, I think
Speaker 1: equities do move higher. Um. I don't think we need
Speaker 1: real yields at one percent to provoke a correction. But
Speaker 1: if we get down to less than half a percent
Speaker 1: negative real yields, where the outlook for treasuries is moving higher,
Speaker 1: I think that will prove some multiple contractions, and I
Speaker 1: do think it will be the highest growth companies. Um
Speaker 1: with the most extreme multiples that are impacted the most
Speaker 1: out companies that are trading at thirty times earning is
Speaker 1: very expensive. But you can see how those big tech,
Speaker 1: big cap tech companies grow their way into those multiples.
Speaker 1: So offsetting a multiple contraction with the earnlish growth and
Speaker 1: Patria before you run, just let me squeeze this one.
Speaker 1: And you brought up a p moder mask A company
Speaker 1: used to follow really closely when I was doing some
Speaker 1: work out of London. Of course, that company out of Denmark,
Speaker 1: Guy Johnson and I used to talk about this all
Speaker 1: the time. I'm not a big fan of stock splits,
Speaker 1: but of all the names, Patrick, in Europe, does that
Speaker 1: company need one? Give? What is credit out right? Now? Um? Yeah,
Speaker 1: it's precludes retail investing. Europe isn't as much of a
Speaker 1: retail investor market anyway as in America, so I don't
Speaker 1: know if it would incrementally create demand, but yes, definitely
Speaker 1: that must open up the shareholder or the potential shareholder base. Patrick,
Speaker 1: Thank you sir. Going to catch up, Patrick Hampstrong there,
Speaker 1: Fleur remake. Let's bring a doctor Amadota now the city
Speaker 1: of Scola. The Johns Hopkins censor for house security doctor.
Speaker 1: Let's stop right here, and I think this is so
Speaker 1: so important. Have we just taken a big step towards
Speaker 1: normalizing how we treat this virus, towards getting that to
Speaker 1: normal I do think that the CDC revised guidance, which
Speaker 1: was based on science, based on what we've learned about
Speaker 1: this virus, does give us some sense of normalcy, because
Speaker 1: what you're seeing is that this is a less disruptive
Speaker 1: event to get COVID nineteen when it's mild, when the
Speaker 1: symptoms have abated, and we're making that isolation period something
Speaker 1: that people can more easily cope with within their lives,
Speaker 1: and we're doing in a safe manner. It's important to
Speaker 1: remember that this one size fits all ten days that
Speaker 1: have been in place for so long didn't really apply
Speaker 1: to everybody because many people were becoming not contagious earlier
Speaker 1: in that time period. So I think this is more
Speaker 1: precision guided. I think it's going to be something that
Speaker 1: people are finding will find much easier to cope with
Speaker 1: when they do get these mild breakthrough infections that are
Speaker 1: going to become ubiquitous. Well. Dr ADAGEA obviously to even
Speaker 1: understand that you have a positive case and need to isolate,
Speaker 1: you need to have a test, and in some cases
Speaker 1: you need to have a test to stop isolation and
Speaker 1: return to your office, for example. Yet testing just doesn't
Speaker 1: seem to be easily accessible. How does that problem get solved.
Speaker 1: This is going to take a full concerted effort by
Speaker 1: the federal government to incentivize companies to make tests, to
Speaker 1: make it easier to get these tests on the market.
Speaker 1: We know we only have a handful that it passed
Speaker 1: through an ownerous FDA regulation process, and I think we
Speaker 1: have to make these cheaper because twenty five for two
Speaker 1: tests out of most people's reach. And this is all
Speaker 1: a result of the fact that tests have always been undervalued,
Speaker 1: that we really never had a robust home testing program
Speaker 1: in place during the Trump administration. It started during the
Speaker 1: Biden administration, but it's been very stulted and flawed and
Speaker 1: not really optimized. So this is going to be the
Speaker 1: key part of how we move through this pandemic, as
Speaker 1: we normalize this, As people want to be able to
Speaker 1: navigate a life with COVID nineteen as as being an
Speaker 1: ever present issue that they have to deal with, they
Speaker 1: need these us and I think we can't wait until
Speaker 1: the fower government solves this problem over time. It has
Speaker 1: to be done now. And I think that this is
Speaker 1: something that Europe has done very well, but in the
Speaker 1: U S has just not been something that prioritize because
Speaker 1: everybody assumed more people will be vaccinated than that just
Speaker 1: didn't happen, and we're still stuck in this limbo. Have
Speaker 1: we learned now that we can't vaccinate our way out
Speaker 1: of this, that you need more more than one weapon
Speaker 1: in this war is? Or are we just still putting
Speaker 1: too much epsis on that. In particular, the vaccines are
Speaker 1: the best tool that we have by far because they
Speaker 1: remove the ability of the virus to cause serious disease, hospitalization,
Speaker 1: and death. So that has to be the key component
Speaker 1: of our response. But not everybody is going to get vaccinated,
Speaker 1: as we've seen, and tests are one way, especially with
Speaker 1: a contagious variant like omicron that can get around vaccine
Speaker 1: and duce protection and cost. Mild infections. Tests are going
Speaker 1: to be almost equally important because people need to know
Speaker 1: their status. Many organizations want don't want to have any
Speaker 1: tolerance of cases in their inside their workplace, for example,
Speaker 1: or at their event so this is something that needs
Speaker 1: to be done in order for the country to kind
Speaker 1: of move forward. Even if all of these cases are mild,
Speaker 1: there's still not a risk tolerance to have these mild cases,
Speaker 1: and you still have hospitals that are under stress from
Speaker 1: Delta patients and now some omicron patients. That's going to
Speaker 1: be the key thing. So until we get to that point,
Speaker 1: this is treated completely like another respiratory virus. Tests are
Speaker 1: going to be something that people want to do very frequently,
Speaker 1: and it's and it's it's still a major mess. How
Speaker 1: soon do we get their amish because, um, you mentioned
Speaker 1: that you expect this to become these breakthrough mild cases
Speaker 1: have become ubiquitous, meaning pretty much everyone is gonna get it,
Speaker 1: and it seems like, you know, with one point four
Speaker 1: million new cases yesterday, that's gonna be fairly soon. We're
Speaker 1: not fighting the Spanish flu anymore, even though we still
Speaker 1: get the Spanish flu and it's one of the biggest killers. Um,
Speaker 1: it's just so common. Is that what this is going
Speaker 1: to become. Yes, this is going to go the way
Speaker 1: of the other four ronaviruses that cause about our common colds.
Speaker 1: So this is going to be something that everybody gets
Speaker 1: it probably will probably get it multiple times. But it's
Speaker 1: going to be a tame reversion because our immune systems
Speaker 1: are going to be trained to respond through vaccines and
Speaker 1: prior infections. We're gonna have tools like anti virals, monoclone,
Speaker 1: land of bodies, and rapid tests so people can know
Speaker 1: what their status is and they don't infect other people.
Speaker 1: So yes, we probably will get away from these these
Speaker 1: public health record with these public health regulations and more
Speaker 1: towards an individual based way of of dealing with this.
Speaker 1: The problem is we still have hospitals in the United
Speaker 1: States and around the world where there are still issues
Speaker 1: with the capacity. And that's the key pivot point for me,
Speaker 1: is when we remove the ability of COVID nineteen to
Speaker 1: cause hospital capacity concerns, and that is the case in
Speaker 1: many parts of the country, but there are still areas
Speaker 1: in the country, specific regions with low vaccination rates where
Speaker 1: they're still at risk for too many people with conditions
Speaker 1: that put them in the need for hospitalization that are
Speaker 1: unvaccinated that can crush the hospital. That's the point where
Speaker 1: we kind of move fully to endemicities when we're not
Speaker 1: seeing hospitals report over bet capacity I see you from
Speaker 1: multiple days for example, because so when do we get there?
Speaker 1: I mean we have we had that in the past
Speaker 1: with flu seasons that were really bad. Um, some hospitals
Speaker 1: get overcrowded. Do we do we end up next Christmas
Speaker 1: in a situation um the likes of which we would
Speaker 1: have seen in bad flu seasons ten years ago to
Speaker 1: twenty years ago. Hopefully that will be the case. Right now,
Speaker 1: it's it's still worse than influenza seasons, even the worst
Speaker 1: of our influenza seasons in many parts of the country.
Speaker 1: That has to be what what what? What changes? So
Speaker 1: probably by the end by next winter a year from now,
Speaker 1: we should be at that phase in the United States
Speaker 1: and many of the developed countries uh that that this
Speaker 1: becomes handled more like influenza. But I still think it's
Speaker 1: going to have a bigger burthen influenza for some time
Speaker 1: because of the attack. Great how many people get infected,
Speaker 1: And it seems on a pound for pound basis to
Speaker 1: be worse than seasonal influenza when it comes to mortality.
Speaker 1: But that will all adapt over time, and obviously new
Speaker 1: variants can come and change that prediction might be faster
Speaker 1: or slower but I think we're still looking at next
Speaker 1: flu season, in the next fluid respiratory virus season, being
Speaker 1: probably closer to our baseline, but still probably a little
Speaker 1: bit more intense than usual, but hopefully manageable. Amish, thank
Speaker 1: you for all that you do. I know you're busy
Speaker 1: on it a Christmas weekend as well. We appreciate it's
Speaker 1: for everything you've done and for us this year as well.
Speaker 1: We'll catch up soon, thought to Amish it down to
Speaker 1: the Matt you said that that CDC decision for some
Speaker 1: paper at least including you, and for me to some
Speaker 1: degree a bullish co Yeah. Absolutely. Because of the problems
Speaker 1: businesses that have had with employees being out for a
Speaker 1: full ten days at least ten days after testing positive,
Speaker 1: they've had to shut down services. Some companies have had
Speaker 1: to shut down production, some companies have shut down retail outlets.
Speaker 1: If they can reduce that to five days, and the
Speaker 1: CDC now says that you can as long as you're
Speaker 1: asymptomatic um. That obviously opens up a chance for them
Speaker 1: to do more business and raise revenue profit as well,
Speaker 1: and maybe to some extent, makes it easier to forecast
Speaker 1: this economy into twenty two. Let's do that right now
Speaker 1: with John Riding, the Chief Economic Advisor, a bree Capital
Speaker 1: and a good friend of this program for a long
Speaker 1: long time. John, It's good to see you buddy. As always,
Speaker 1: let's start with a call for next year, John, what
Speaker 1: are you focused on? Well? I think the main focus
Speaker 1: is the inflation story. And this was a story that
Speaker 1: as early as April of last year, we warned that
Speaker 1: we were going to have an inflation event, not a
Speaker 1: disinflation or deflation event, because it would negatively it been
Speaker 1: the the virus and the government mesh lockdown measures would
Speaker 1: negatively hit the supply side. Now the supply chains have
Speaker 1: been hit harder, more prolonged than I think that we imagine.
Speaker 1: And on the other side, we're going to get massive
Speaker 1: demand stimulus that was monetary financed, and we've certainly had
Speaker 1: that and UH As a result, the combination has been
Speaker 1: a far more elevated inflation rate than anyone expected. Almost
Speaker 1: seven percent, may well be seven percent when the December
Speaker 1: data come in. And so the question is how much
Speaker 1: does that inflation rate moderate and what is the policy response,
Speaker 1: because I just don't believe that that inflation is going
Speaker 1: to wind itself down to two percent without little action
Speaker 1: from the FED. I think inflation expectations are getting embedded.
Speaker 1: Your previous guests talking about all those pressures on the
Speaker 1: airline industry was just an example of the cost pressures
Speaker 1: that companies are able to pass along in this environment.
Speaker 1: So I think the inflation story is the first. I
Speaker 1: think the inflation rate is going to be close to
Speaker 1: four and the Fed is going to end up taking
Speaker 1: more steps, as its signaled at the last meeting with
Speaker 1: its dot plot, than people have been expecting. A couple
Speaker 1: of things that John, then the scale of deceleration on
Speaker 1: headline inflation. You're looking for seven potential to close out
Speaker 1: of the year into next year, and the policy response
Speaker 1: that would shake that move lower. John, let's build on that.
Speaker 1: The expectation now for many people is three hikes next year.
Speaker 1: Does that do anything? John? Does that achieve anything? Well?
Speaker 1: I think it starts off as a signal, and I
Speaker 1: think the key thing was for the FED to recognize
Speaker 1: the problem. I don't think the FED fully recognized the
Speaker 1: problem at Chair Powell's last press conference, but I think
Speaker 1: it went some way to recognizing the problem by getting
Speaker 1: rid of the transitor language, putting again three hikes that
Speaker 1: were supported by thirteen members of the committee as opposed
Speaker 1: to the one hike that was at the in the
Speaker 1: last dot plot back in September, which was basically a
Speaker 1: split decision with as many people looking for one hikers
Speaker 1: looking for no move at all. So it is an
Speaker 1: important signal, and I think the really good thing would
Speaker 1: be if that move came in March. The asset wind
Speaker 1: down at the asset purchases ends mid March. The next
Speaker 1: decision day, I think is March sixte So if the
Speaker 1: FED were to raise rates on March sixteenth, it would
Speaker 1: be a signal. And then the next signal will be
Speaker 1: start letting the balance sheet run off and perhaps do
Speaker 1: that as soon as June of next year. Will that
Speaker 1: be enough? Probably not, But it is important that we
Speaker 1: the FED recognizes the problem and starts to take steps.
Speaker 1: And then that makes companies begin to think should price increases,
Speaker 1: which I fear is becoming the case, uh not be
Speaker 1: part of our process for making profits because we're in
Speaker 1: an environment right now. We we've got cost pressures, but
Speaker 1: companies are raising prices by even more than the costs
Speaker 1: are going to go, perhaps using the cover of costs
Speaker 1: and widening profit margins, and that's relatively unusual, necessarily different
Speaker 1: from the profit from the inflation environment that we had
Speaker 1: in the nine seventies. So I think those signals are
Speaker 1: very important to start reframing the decision making Pross. But no,
Speaker 1: by itself, I think there's going to be more rate
Speaker 1: hikes into three more I think, you know, being signaled
Speaker 1: by the dot plot um. But on the other side,
Speaker 1: the economy is still going to be rolling along because
Speaker 1: there's so many supply constraints, so higher rates are not
Speaker 1: going to hurt the economy. We've got so much access
Speaker 1: demand in the system. Taking some demand out isn't going
Speaker 1: to slow growth. It isn't going to create any slack
Speaker 1: in the labor market. There's just simply plenty of jobs
Speaker 1: out there, and all of this COVID protocols are making
Speaker 1: it harder and harder to fulfill those positions. So is
Speaker 1: what you're saying, essentially, John, that the FED is likely
Speaker 1: going to have to move more aggressively, but it's not
Speaker 1: going to amount to a policy mistake of some kind. Um.
Speaker 1: The policy mistake has been made, and the policy mistate
Speaker 1: was keeping the emergency measures in place for too long.
Speaker 1: There was no need to have continued purchasing at a
Speaker 1: hundred and twenty billion dollars a month almost through to
Speaker 1: the end of this year. They they only started that
Speaker 1: to wind down adjustment in November. So that was one
Speaker 1: policy and state there was the Fed could have signaled
Speaker 1: that inflation wasn't going to be transford. They weren't going
Speaker 1: to let it be anything other than transitory by by
Speaker 1: recognizing the problem. But I think there was some mischaracterization
Speaker 1: the inflation from a lot of focus on really a
Speaker 1: lot of focus on a handful of items, even as
Speaker 1: all the data showed that it was broadening out and
Speaker 1: the inflation precius of broadened out. And you can't talk
Speaker 1: down this inflation problem. You know, a credible FED has
Speaker 1: to talk against the inflation problem, take action against the
Speaker 1: inflation problem. Well, John Matt brought up the great point
Speaker 1: earlier around the timing of Powell changing his message and messaging,
Speaker 1: retiring the word transitory, and the President renominating him for
Speaker 1: a second term at the Federal Reserve. The President still, though,
Speaker 1: has several more nominations to make seats that need to
Speaker 1: be filled. Do you think who sits in them could
Speaker 1: shift the balance of policy going forward. It could, and
Speaker 1: it could shift the balance to the detriment of the outlook,
Speaker 1: and it could shift the balance to the detriment of
Speaker 1: this administration. This is false belief that somehow having dabish
Speaker 1: members of the committee by Davish, I mean less inclined
Speaker 1: to raise interest rates or to be more focused on
Speaker 1: things other than inflation. Uh, somehow helps the administration. And
Speaker 1: that's just a falise choice. What we need are people
Speaker 1: who have some experience with inflation, some strong academic background
Speaker 1: on the inflation frontum. We need strong people on financial
Speaker 1: regulation because the other problem is going to be with
Speaker 1: especially the chair of the Vice Chair for Financial Supervision
Speaker 1: open is going to be the potential impact on the
Speaker 1: markets of unwinding all this accommodation which has been in
Speaker 1: place too long. So yes, good choices could certainly helped
Speaker 1: this and push the federal Bad choices could make the
Speaker 1: inflation problem worse, and that will hurt the administration. It
Speaker 1: will not help the administration, nor will it help the
Speaker 1: economic outlook. I think you know, you bring up an
Speaker 1: interesting point, an important point, John with her guards to experience,
Speaker 1: and you're obviously a sprightly young man on the football pitch.
Speaker 1: But you were around during the nies when we saw
Speaker 1: a real inflation. You were advising the Bank of England,
Speaker 1: you were advising UM, the Federal Reserve Bank of New York.
Speaker 1: What can the FED do other than simply raise rates
Speaker 1: in order to fight inflation. It's about signally and it's
Speaker 1: about saying what your priorities are as well as taking action.
Speaker 1: And an important signal will be starting to wind down
Speaker 1: this balance sheet. Now, my preferred outcome, which is not
Speaker 1: going to happen, is the Fed actually starts selling assets.
Speaker 1: The FET's not going to do that, but they could
Speaker 1: wind down somewhere between a trilling and a trillion and
Speaker 1: a half dollars simply by stopping reinvesting and putting relatively
Speaker 1: high caps to that runoff each month, and that would
Speaker 1: be an important signal. But it really is about It
Speaker 1: really is about a signaling and to back up the
Speaker 1: rate actions so that all the we've heard, what are
Speaker 1: the instruments of policy. The FED has asset purchases, rates,
Speaker 1: and forward guidance. So put all of those into action.
Speaker 1: And if the Fed were to talk about assets sales
Speaker 1: as opposed to asset runoff, that would be a real
Speaker 1: tighty move. But I think taking action on the balance
Speaker 1: sheet in June, which I think could happen would be
Speaker 1: would be a strong signal. But it's once the inflation
Speaker 1: gene is out of the bottle and it's getting out
Speaker 1: of the bottle, it just doesn't easily go back in again.
Speaker 1: To for those of you, John who in Christmas pantomimes
Speaker 1: when you're a kid, that the you know, the the
Speaker 1: getting the genie back in the bottle, very very difficult trick.
Speaker 1: I used to hate them, John, he's behind you. That
Speaker 1: reference is lost on everyone in America. John, just quickly
Speaker 1: you said something. They're so important, and I think we
Speaker 1: can sort of think about this without the noise of
Speaker 1: the market on a week like this. You said they
Speaker 1: should sell assets. Can you imagine, John, what would happen
Speaker 1: if they sold assets? John, what do you think would
Speaker 1: happen in financial markets if they said we're not just
Speaker 1: gonna when reinvestment, we're going to sell. Well, I think
Speaker 1: that especially if they were to say, let's sell the
Speaker 1: mortkeage assets because we really want a treasury only portfolio,
Speaker 1: or sell them partially reinvest in treasures, that would be
Speaker 1: like more like a capital market decision. But I think
Speaker 1: the key thing is telling the markets in advanced guiding
Speaker 1: the markets to that. But what what would happen? Would
Speaker 1: tighten financial conditions and effects trying to sort of pull
Speaker 1: off this impossible scenario of tighten policy without tightening financial conditions,
Speaker 1: and that's not possible. It's like trying to make an
Speaker 1: omelet without breaking eggs to use them. To use the
Speaker 1: well worn analogy, financial conditions will have to be tightened,
Speaker 1: and selling would tighten them a lot more. But look,
Speaker 1: it's not going to happen. I think one thing we
Speaker 1: can count on the Fed's not going to do. The
Speaker 1: best we can hope for is an early end to reinvestments.
Speaker 1: Since the FED were to hike rates in March and
Speaker 1: to allow a lessets to start to run off in
Speaker 1: May or June, as I think some on the F
Speaker 1: one c want to do so, or Governor Waller has
Speaker 1: been very clear on wanting to allow assets to run
Speaker 1: off fairly quickly after the FED starts hiking rates. I
Speaker 1: think that would be um a good step in the
Speaker 1: right direction to tackling inflation problem. But let's be clear,
Speaker 1: even under the best policy from fighting inflation, we're still
Speaker 1: going to have an elevated inflation rate in twenty three
Speaker 1: and possibly even into John just quickly. Tom Keane rides in,
Speaker 1: asked John on Preston, North End and Stoke on January three,
Speaker 1: and I think we should have to Let's let's hope
Speaker 1: the game goes ahead. The king be all the games
Speaker 1: that I've cared about were counseled on watching, which is
Speaker 1: a sam Win six. And those of you, late Donald,
Speaker 1: hight not happen, your beloved Preston, John riding and Merry
Speaker 1: Christmas to you, sir. It's gonna catch up John running
Speaker 1: there of bring capital with an echovy market at all
Speaker 1: time high. It's and a bit of trouble down in
Speaker 1: d C. For the President at the United States Johning
Speaker 1: us now on that is Wendy Schiller of Brown University.
Speaker 1: When do you let's just start there? The President in
Speaker 1: the last twenty four hours saying there is no federal
Speaker 1: solution in many ways, that states the obvious when it
Speaker 1: comes to COVID nineteen and coronavirus. But do you think
Speaker 1: he's lost control of the messaging in a way that
Speaker 1: he thought he would have control over it when he
Speaker 1: ran to become president of the United States. Yeah, Jonathan,
Speaker 1: in some ways, he's just right back where he started
Speaker 1: when he first was inaugurated, right dealing with a lot
Speaker 1: of holiday surging on COVID UH and the vast majority
Speaker 1: of Americans were not yet vaccinated, and they were told, look,
Speaker 1: go get vaccinated and things will get back to normal,
Speaker 1: or at least as close to normal as possible. And
Speaker 1: the vast majority of Americans did get vaccinated, many many
Speaker 1: millions have not yet done it, which is part of
Speaker 1: the problem. But nonetheless, mother nature is a very powerful force.
Speaker 1: And though here we are a year later and it
Speaker 1: just feels like deja vu. And I think that's just
Speaker 1: a really big problem for the Biden administration, which has
Speaker 1: been doing a lot of things successfully. Actually they just
Speaker 1: stomped on their own messaging with the failure of build
Speaker 1: back better and then build back better is about more government.
Speaker 1: And when voters look at government now, they think, well,
Speaker 1: you're failing us. You're failing us in COVID, you're failing
Speaker 1: us on testing, you're failing us on care. You know,
Speaker 1: why would we give you an opportunity to do more
Speaker 1: when it looks to us like you can't do what
Speaker 1: you're supposed to do now. Well, Wendy, the President yesterday
Speaker 1: said there is no federal solution, US gets stalled at
Speaker 1: a state level. Is that the president trying to shock
Speaker 1: some of the political blame away from himself or is
Speaker 1: this a president who's just not adequately adequately responding to
Speaker 1: a national challenge. Well, I think when we're in crisis,
Speaker 1: voters don't want to hear blame it on somebody else,
Speaker 1: even if there are realities where you have governors like
Speaker 1: the governor of Florida who's actively trying to prevent mass mandates,
Speaker 1: prevent vaccine requirements, and private businesses uh penalized people for
Speaker 1: trying to take safety measures. You know, he's very popular
Speaker 1: in Florida, but that doesn't help. The problem is that
Speaker 1: you know that's not just the only one state out
Speaker 1: of fifty and then you know, blaming the voter or
Speaker 1: blaming the person who's not getting vaccinated, that just causes
Speaker 1: more division. I think it makes communication and messaging to
Speaker 1: those people harder. I think the issue will be public health.
Speaker 1: Does the government have the right to do what it
Speaker 1: has to do, as you're seeing in New York City
Speaker 1: with the Mayor of New York City or President Biden
Speaker 1: to mandate vaccines and the idea of man date being
Speaker 1: a sort of unattractive thing to a lot of Americans.
Speaker 1: Were about to find out the court allows the government
Speaker 1: to tell larger businesses what to do. This is gonna
Speaker 1: be a big issue, and this is gonna be a
Speaker 1: turning point in the twenty one century for all of America.
Speaker 1: You know, will we make these sacrifices, will we allow
Speaker 1: the government to issue these mandates? And just not clear
Speaker 1: that's gonna happen yet. Yeah, we'll see how those arguments
Speaker 1: go when the Supreme Court hears them in less than
Speaker 1: two weeks time. Wendy, do you think that COVID nineteen
Speaker 1: is the president's biggest political headache right now? Or is
Speaker 1: it something else? No? I mean, I think it's it's twofold.
Speaker 1: It's COVID nineteen. It's obviously existing politization and division in
Speaker 1: the country that he inherited essentially, and it's also still
Speaker 1: the fractures in his own party. You know, if he
Speaker 1: could come out of the gate now, he's not gonna
Speaker 1: have you know, for the state of the Union will
Speaker 1: be about COVID. It won't be about what can we
Speaker 1: do next? He's got to line up the Democrats. You know,
Speaker 1: at least twenty three I believe now announced that they're retiring,
Speaker 1: So he's looking at a pretty lost majority, probably for
Speaker 1: two and beyond. After the election, he's got to think
Speaker 1: about a simple thing that he wants that he can
Speaker 1: get from his own majority party, and they've got to
Speaker 1: figure that out too. That's another headache. But things like
Speaker 1: making life easier for people who struggle during COVID, like
Speaker 1: childcare for example, that is likely to be popular among
Speaker 1: voters who are coming out of a very difficult economic
Speaker 1: situation and a stressful situation with the pandemic. Think small,
Speaker 1: Think targeted, Think what you can accomplish and get that done.
Speaker 1: You know. We talked to Mohammed Units yesterday from Gallop
Speaker 1: and he pointed out that the president's approval ratings have
Speaker 1: been low since the fall of Kabul and and haven't
Speaker 1: changed much since then. But in the meantime we've seen
Speaker 1: inflation really ramp up, and of course his critics blame
Speaker 1: that on President Biden. How important is the resurgence of
Speaker 1: inflation and what can the president do about it? Well,
Speaker 1: it all goes to the same sort of sense of
Speaker 1: misery on the part of the average citizen. You go
Speaker 1: to the shelves, you can't find things that you need
Speaker 1: that you normally can it. It's hard to get a
Speaker 1: new card, it's hard to get a used car, it's
Speaker 1: hard to get a dishwasher, it's hard to get things
Speaker 1: that Americans are used to getting relatively easily. And now
Speaker 1: of course that's transferred to home testing for COVID. So
Speaker 1: it's all about we can't even live the laws we
Speaker 1: want to live. An inflation is part of that, but
Speaker 1: it's all going to the fact that it seems as
Speaker 1: though things are out of control and that the government
Speaker 1: can't get them back in control, and inflation has become
Speaker 1: one of another thing that's really fueling this sense of frustration.
Speaker 1: If this is delicate, and I want to finish here
Speaker 1: with you because I think you're the perfect guest to
Speaker 1: cover it with me, there's something about the attitude sometimes
Speaker 1: an administration where they kind of missed the moment. I
Speaker 1: remember when the Press Secretary Jen Sanky was asked about
Speaker 1: home testing and basically, why haven't we got home testing?
Speaker 1: Why can't we do what the UK does, which is
Speaker 1: basically send a message and you get some the following morning,
Speaker 1: and she turned around and said, what would you like
Speaker 1: us to do? Send one to every American And that's
Speaker 1: exactly what they're going to try and do. Now, do
Speaker 1: you think they need to adjust a little bit, just
Speaker 1: less of the snow, less of the attitude, actually start listening. Well,
Speaker 1: I think at least they have to appear to be listening. Uh,
Speaker 1: And I know we're a little bit sure on time.
Speaker 1: I can go a long time on the political malpractice
Speaker 1: of very experienced politicians who are in the White House. Now,
Speaker 1: President's gonna have to shake your staff up. That's what
Speaker 1: Clinton had to do many years ago. Biden did, I'm sorry,
Speaker 1: Obama did it a little bit later into his term.
Speaker 1: You gotta shake it up. If the staff that you
Speaker 1: have now are not serving you well, and you're having
Speaker 1: messaging issues, you're having government competence issues, at least the
Speaker 1: appearance of them, you've gotta make a change. You've got
Speaker 1: to get people in who are are better attuned to
Speaker 1: this and who can pivot not only that people under
Speaker 1: the president, but the president himself to learn how to
Speaker 1: really focus on the things that people are caring about
Speaker 1: in their daily lives. And it's policy or it's COVID,
Speaker 1: and make that the only message you are conveying for
Speaker 1: the next three to six months. Wendy, thank you as always,
Speaker 1: Wendy Ship of the Brand University, looking forward to catching
Speaker 1: up against Sue. This is the Bloomberg Surveillance Podcast. Thanks
Speaker 1: for listening. Join us live weekdays from seven to ten
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Speaker 1: Keene and this is Bloomberg