WEBVTT - Allocating for the Boom 0:00:01.320 --> 0:00:12.080 Scrap on your parachute. It's time for What Goes Up. Hello, 0:00:12.119 --> 0:00:15.240 and welcome to What Goes Up, a weekly markets podcast. 0:00:15.720 --> 0:00:18.800 I'm Mike Reagan, a senior editor at Bloomberg, and this 0:00:18.840 --> 0:00:21.119 week on the show, we'll talk about how everyone is 0:00:21.160 --> 0:00:24.440 expecting this year to be a blockbuster period for the economy, 0:00:24.840 --> 0:00:27.760 with the Federal Reserve expecting us GDP to grow by 0:00:27.840 --> 0:00:32.240 six point five. Our guest is optimistic about growth as well, 0:00:32.280 --> 0:00:35.479 but not quite as optimistic as the Fed. We'll discuss 0:00:35.520 --> 0:00:37.760 why and what it means for how you should allocate 0:00:37.800 --> 0:00:41.280 your investments this year. But first, let's let Charlie Pellett 0:00:41.360 --> 0:00:44.519 tell us who this week's mystery co host is. This 0:00:44.560 --> 0:00:49.479 week's mystery co host is Scarlet Food. Scarlett is an 0:00:49.520 --> 0:00:53.240 anchor for Bloomberg Quicktake and a veteran of Bloomberg Television 0:00:53.320 --> 0:00:56.600 and Bloomberg News. She's an avid mountain bike rider who 0:00:56.600 --> 0:01:00.440 actually taught Mike Reagan everything he knows about the Bloomberg Rominal. 0:01:00.840 --> 0:01:04.440 Of course, she's still way faster than Mike, both on 0:01:04.480 --> 0:01:08.039 a mountain bike and a terminal. You know, Scarlett, I'm 0:01:08.080 --> 0:01:11.360 gonna have to talk to Charlie about these introductions. He's 0:01:11.360 --> 0:01:14.720 getting some insults in on me there, but it is true. 0:01:14.760 --> 0:01:18.520 I assume you are still faster on than be on 0:01:18.560 --> 0:01:21.360 a terminal D bike. I'm faster when I'm typing and 0:01:21.480 --> 0:01:24.480 using shortcuts on Microsoft Word. I'm not sure about on 0:01:24.560 --> 0:01:26.920 a mountain bike, especially going downhill. I tend to be 0:01:26.959 --> 0:01:30.319 pretty cautious when going downhill and uphill. I'm I'm not 0:01:30.440 --> 0:01:33.199 I'm not too fast either, but we're working on that. Also, 0:01:33.280 --> 0:01:36.399 being introduced by Charlie Pellett is amazing, isn't that. It's 0:01:36.400 --> 0:01:40.000 a great pair of of doing this podcast, having Charlie 0:01:40.040 --> 0:01:42.480 do the intros and and a little insult comedy once 0:01:42.480 --> 0:01:45.320 in a while as well. But Scarlett talk to us 0:01:45.319 --> 0:01:47.680 about Quick Take. I'm very excited about all the all 0:01:47.720 --> 0:01:50.320 the plans in the work for for Quick Take is 0:01:50.400 --> 0:01:53.320 Chris Paul, NBA star. Chris Paul is going to be 0:01:53.360 --> 0:01:54.920 doing the show. I hope he doesn't mess up the 0:01:55.160 --> 0:01:57.720 groove in your seat though now I think, um, he's 0:01:57.760 --> 0:01:59.600 got his own seat, he's got his own table, he's 0:01:59.600 --> 0:02:01.800 got his room, he'll be doing his own thing. I'm 0:02:01.840 --> 0:02:03.760 not totally sure what it's going to be yet. And 0:02:03.760 --> 0:02:05.960 in fact, even if I did. I couldn't say anything 0:02:06.040 --> 0:02:08.639 because there's going to be a big release on April. 0:02:09.600 --> 0:02:12.200 But in the meantime, um we're doing a lot of 0:02:12.240 --> 0:02:15.320 good work just on covering the business news stories more 0:02:15.360 --> 0:02:18.840 from a consumer perspective rather than for the Bloomberg Terminal 0:02:19.000 --> 0:02:22.440 client and customer. So it's a really interesting time, obviously, 0:02:22.480 --> 0:02:25.240 given what's happening in the markets and the economy, and 0:02:25.360 --> 0:02:27.960 with all the different social justice movements as well, and 0:02:28.040 --> 0:02:31.639 this focus on equality, which is something that I've been 0:02:31.680 --> 0:02:33.200 doing a lot of work on over the last couple 0:02:33.240 --> 0:02:36.880 of years of Bloomberg Equality. It's excellent. I'm really looking 0:02:36.880 --> 0:02:40.160 forward to the launch of the new prime time lineup, 0:02:40.200 --> 0:02:43.040 and of course, as always, you can watch Scarlett anchor 0:02:43.160 --> 0:02:46.280 during the day. Scarlett really did teach me everything about 0:02:46.280 --> 0:02:48.280 the terminal. By the way, I don't want to data Scarlett, 0:02:48.400 --> 0:02:51.680 please go back in two and seven. What siety did? 0:02:52.600 --> 0:02:54.480 I think you're a little generous with the date there, 0:02:54.480 --> 0:02:56.160 But that's fine. I'll let you get away with that. 0:02:58.800 --> 0:03:03.240 Fair enough, fair enough to thousand and it was. But anyway, 0:03:03.760 --> 0:03:06.000 let's let's bring in our guest here. We're very excited 0:03:06.080 --> 0:03:10.079 to have him. He is the chief portfolio strategist at 0:03:10.120 --> 0:03:13.480 State Street Global Advisors, so he can talk about all 0:03:13.600 --> 0:03:17.720 manner of macro markets and the economic outlook and everything 0:03:17.720 --> 0:03:21.000 in between. His name is Garv Malick Garve. Welcome to 0:03:21.000 --> 0:03:23.720 the show. Nice to be here, Michael mused to be 0:03:23.760 --> 0:03:26.800 a scarlet. Well, thanks for thanks for your time. We 0:03:26.840 --> 0:03:30.400 really appreciate it. And let's start with that discussion about 0:03:30.440 --> 0:03:33.240 GDP this year. I know you guys are a little 0:03:33.280 --> 0:03:36.720 more conservative in your estimates, uh for GDP this year 0:03:36.760 --> 0:03:39.119 than say the fet Is. Walk us through about why 0:03:39.160 --> 0:03:42.200 that is. I mean, still I think regardless, we can 0:03:42.240 --> 0:03:46.240 expect a pretty much a blockbuster year for economic growth, 0:03:46.520 --> 0:03:50.080 especially compared to what we've seen, saying the post financial 0:03:50.120 --> 0:03:52.960 crisis era. But walk us through what you're thinking about 0:03:53.040 --> 0:03:55.640 growth this year and kind of how it will play 0:03:55.680 --> 0:03:59.480 into the markets. Sure, so we aren't expecting a little 0:03:59.480 --> 0:04:01.520 bit though, as you said, than the than the FED, 0:04:01.680 --> 0:04:04.160 I mean, I don't want to read too much into 0:04:04.240 --> 0:04:07.760 it as well. I think that our expectation is that 0:04:08.160 --> 0:04:11.760 both the pasage where things start opening, the pace set 0:04:11.840 --> 0:04:16.240 which consumers starts spending, business spending starts picking up, all 0:04:16.320 --> 0:04:18.679 that from a timing standpoint could be a little different 0:04:19.080 --> 0:04:21.360 than what the FED is assuming right now, So our 0:04:21.440 --> 0:04:23.599 expectations things are going to take a little bit longer 0:04:23.600 --> 0:04:29.320 to normalize. So from our perspective one, maybe a little 0:04:29.320 --> 0:04:31.240 bit behind the FED. But then if you start looking 0:04:31.240 --> 0:04:33.599 at two, perhaps even a little bit ahead of the 0:04:33.640 --> 0:04:36.320 FED at at at that point in time. So it's 0:04:36.360 --> 0:04:39.800 a bit about timing as to what's the path to normalization, 0:04:40.680 --> 0:04:43.400 and a bit about other factors. I mean, there are 0:04:43.480 --> 0:04:46.000 some odd things we're seeing in consumer behavior. The fact 0:04:46.040 --> 0:04:48.480 that you know, stimulus checks went out. People are of 0:04:48.480 --> 0:04:50.880 course spending a bit of it. People are indeed using 0:04:50.880 --> 0:04:53.760 it to pay down debt, some of it is going 0:04:53.800 --> 0:04:57.520 to savings. So all those factors keep us a little 0:04:57.560 --> 0:04:59.920 bit behind the FED as we look at one, and 0:05:00.000 --> 0:05:02.120 a little bit ahead perhaps as we look at two. 0:05:02.279 --> 0:05:04.120 But all in I agree with you, this is going 0:05:04.160 --> 0:05:08.119 to be a blogbuster year, the best we've seen in decades. Okay, 0:05:08.160 --> 0:05:10.880 so maybe two or three years out it'll all even 0:05:10.880 --> 0:05:14.240 out with what the FET is projecting, With what you're projecting. 0:05:14.680 --> 0:05:18.080 I wonder, though, with the rest of the world opening 0:05:18.160 --> 0:05:20.800 up at a slower pace than the US, what does 0:05:20.839 --> 0:05:23.880 that mean in terms of consumption in the United States? 0:05:24.160 --> 0:05:26.120 Because a lot of the times people are spending their 0:05:26.160 --> 0:05:29.640 money and they're having these experiences traveling out of the country, 0:05:29.880 --> 0:05:33.239 spending their dollars outside the US. People aren't really leaving 0:05:33.240 --> 0:05:35.679 the country. Now, what does that mean for domestic demand 0:05:35.800 --> 0:05:38.080 and the kind of consumer spending we can expect over 0:05:38.080 --> 0:05:41.000 the next couple of years. So you're touching on a 0:05:41.120 --> 0:05:42.960 very pressing point, right. So one of the reasons why 0:05:43.080 --> 0:05:44.760 in some ways we say that, you know, as we 0:05:44.760 --> 0:05:47.359 think about not only just US GDP, but global GDP, 0:05:47.480 --> 0:05:49.680 even in global GDP numbers where perhaps a little bit 0:05:50.080 --> 0:05:53.960 behind consensus podcasts because exactly what you said, the fact 0:05:54.000 --> 0:05:56.880 that consumers are going to be spending a bit more domestic, 0:05:57.040 --> 0:05:58.640 but not as much as they would have spent what 0:05:58.720 --> 0:06:01.479 they're traveling to. Let's say you're up for or Asia, 0:06:02.240 --> 0:06:05.400 and we also think that the recovery is going to 0:06:05.480 --> 0:06:09.000 have a rolling Um, yeah, it's going to be in 0:06:09.160 --> 0:06:12.080 in wades or role. So right now US is taking 0:06:12.080 --> 0:06:16.440 the lead. I don't think that the current pace of vaccinations. 0:06:16.520 --> 0:06:18.600 Everybody knows it's been slow in Europe, but I don't 0:06:18.600 --> 0:06:21.080 think we should make consumption that will forever be slow 0:06:21.120 --> 0:06:23.600 in Europe or in Asia. I think they will pick up. 0:06:23.680 --> 0:06:26.000 So there's gonna be a bit of a baton handing 0:06:26.120 --> 0:06:28.760 that's going to occur from US to Eurozone, Eurozone to 0:06:28.960 --> 0:06:32.000 e M. So some dealers occurring as you think about 0:06:32.000 --> 0:06:34.560 that roll over occurring, but actually correct, the fact that 0:06:35.080 --> 0:06:37.280 consumers are going to be spending a bit more and 0:06:37.360 --> 0:06:41.039 domestically does lift up the US, but the fact that 0:06:41.080 --> 0:06:44.240 they will not be spending as much internationally means perhaps 0:06:44.440 --> 0:06:46.400 airlines we're not gonna be running as many routes as 0:06:46.400 --> 0:06:49.960 they do internationally revenue impact, So some of those dealers 0:06:50.000 --> 0:06:53.080 that might occur because of timing other reasons why you 0:06:53.120 --> 0:06:56.839 might see some differential behavior. Uh and uh, perhaps some 0:06:57.320 --> 0:07:00.599 better impact in the US immediately, but then um, you know, 0:07:00.640 --> 0:07:02.240 some store do as you think about the other parts 0:07:02.240 --> 0:07:04.760 of the of the globe. Yeah, I do think it's 0:07:04.760 --> 0:07:07.599 interesting to garb Uh you wrote a little bit about 0:07:07.720 --> 0:07:11.640 external leakage. Uh, and correct me if I'm misunderstanding that. 0:07:11.680 --> 0:07:13.840 But I I sort of picture that is, you know, 0:07:13.920 --> 0:07:17.400 stimulus money being spent by the US government kind of 0:07:18.160 --> 0:07:21.680 then in turn being spent on on imports and stuff 0:07:21.720 --> 0:07:24.840 like that. Walk us through how you're thinking about that 0:07:24.880 --> 0:07:28.040 and also how you're thinking about sort of the path 0:07:28.160 --> 0:07:32.080 going forward for fiscal spending. Um, are we really going 0:07:32.120 --> 0:07:35.400 to see this infrastructure package that is being discussed or 0:07:35.840 --> 0:07:38.040 is that is it gonna be you? My guess is 0:07:38.080 --> 0:07:39.960 we we might have kind of a rocky road to 0:07:40.040 --> 0:07:43.440 get to that, perhaps perhaps disappointing the markets a little bit. 0:07:43.640 --> 0:07:45.840 I don't know, but I'm curious how you're thinking about 0:07:45.840 --> 0:07:49.760 all those issues. Yeah, so I think that first on 0:07:49.840 --> 0:07:53.000 your on your interest question about leakage, Yes, absolutely, it's 0:07:53.000 --> 0:07:55.040 it's sort of you know, party to do with imports, 0:07:55.080 --> 0:07:57.040 party to do with savings, and I think one of 0:07:57.080 --> 0:08:00.560 the things that has definitely changed for for the U 0:08:00.600 --> 0:08:03.400 s consumer from a behavior standpoint. I mean, you guys 0:08:03.440 --> 0:08:06.240 know this right, Like I don't want to two or 0:08:06.240 --> 0:08:08.840 two if you were dating your your years or your 0:08:08.880 --> 0:08:11.600 age perhaps in this process, but clearly you know that 0:08:11.720 --> 0:08:14.400 two thousand's beginning two thousands of the US consumer was 0:08:14.680 --> 0:08:18.280 consistently in deficit. We were spending more that we were earning. 0:08:18.640 --> 0:08:20.720 And then post two thousand eight and g FC, we've 0:08:20.760 --> 0:08:23.000 seen a change in behavior where the US consumers actually 0:08:23.040 --> 0:08:26.440 beginning to stay more and that does indeed continue even 0:08:26.480 --> 0:08:28.880 as we look at the effects of the stimulus, most 0:08:29.000 --> 0:08:33.839 recently more money being used to pay down debts. But 0:08:33.880 --> 0:08:35.959 I think part of the behavior actually correct, is that 0:08:36.040 --> 0:08:39.640 the savings is driving some of that behavior, and some 0:08:39.720 --> 0:08:42.439 of it is also timing in how consumers choose to 0:08:42.480 --> 0:08:46.880 spend that money, um, you know, dealaying certain decisions two 0:08:47.240 --> 0:08:49.960 perhaps later in the year, and all those things do 0:08:50.240 --> 0:08:53.120 factor in as we as we think about that, the 0:08:53.240 --> 0:08:56.000 leakage that getting through, and I remembering what was the 0:08:56.040 --> 0:08:59.560 second question you had, what you think about this next 0:08:59.640 --> 0:09:04.160 phase of fiscal spending, the infrastructure package that we keep 0:09:04.200 --> 0:09:06.480 hearing about, is it you know? My guess is it's 0:09:06.480 --> 0:09:09.319 gonna be that's that's gonna be a tough negotiation, sort 0:09:09.360 --> 0:09:12.400 of a hard fought negotiation, and perhaps maybe the market 0:09:12.440 --> 0:09:15.480 might be disappointed. I'm curious what you think. Yeah, so 0:09:15.520 --> 0:09:17.079 I think there's two ways to think about it. As 0:09:17.120 --> 0:09:18.400 I agree with you that there is going to be 0:09:18.480 --> 0:09:20.800 some disappointment along the way, I think Biden is doing 0:09:20.800 --> 0:09:23.280 everything you can to make sure we get to some outcome. 0:09:23.320 --> 0:09:26.560 And everybody acknowledges that this type of spending has to 0:09:26.600 --> 0:09:29.680 occur for a variety of reasons. Um As you know, 0:09:29.720 --> 0:09:31.319 I mean you you you said in my Tattle of 0:09:31.400 --> 0:09:33.080 Chief portal A Strategies. But one of the things I 0:09:33.120 --> 0:09:36.240 do is I work with various institutions, from sovereign well 0:09:36.320 --> 0:09:40.560 funds to um pentioned puss across the board. They're hankering 0:09:40.600 --> 0:09:45.040 for assets that have long duration and give big dreams 0:09:45.080 --> 0:09:48.880 of income, you know, beyond thirty years. Even so there 0:09:48.960 --> 0:09:51.559 is a need for for the infrast spend that has 0:09:51.640 --> 0:09:55.240 demand on every side, it is going to be a 0:09:55.280 --> 0:09:58.480 little bit difficult. So you know, I agree with that aspect. 0:09:58.720 --> 0:10:00.880 I think the way we think about it in some 0:10:00.920 --> 0:10:03.800 ways from a market standpoint, our ship heres for a 0:10:03.800 --> 0:10:06.040 second here, So how do we play that to have 0:10:06.160 --> 0:10:09.800 the greatest chance of success in terms of getting the 0:10:09.840 --> 0:10:12.760 returns we expect from that from the Biden stimulus. And 0:10:12.800 --> 0:10:15.079 we think the highest beta for that is actually material 0:10:16.080 --> 0:10:20.280 It's a sector which has you know, blight constraints around it. 0:10:20.280 --> 0:10:23.080 It's a sector in which we don't see we see 0:10:23.640 --> 0:10:26.760 we see a lot of discipline in terms of ongoing investments. 0:10:27.640 --> 0:10:30.720 So when we think about playing out the Biden scenario 0:10:30.840 --> 0:10:34.160 versus what actually gets realized, we think materials is a 0:10:34.160 --> 0:10:36.480 good place to be. To some extent, industrials too, but 0:10:36.600 --> 0:10:38.400 Butterios is a nice place to be for for a 0:10:38.440 --> 0:10:41.160 reasonable length of time to to play the Biden in 0:10:41.160 --> 0:10:44.640 pron plan. I'm glad you bring up infrastructure, Mike, because 0:10:44.880 --> 0:10:48.320 my son is looking to be a structural engineer, because 0:10:48.320 --> 0:10:50.319 he is graduating from high school this year, and Mike 0:10:50.320 --> 0:10:52.400 and I talk a lot about this whole process of 0:10:52.440 --> 0:10:54.840 getting your kids to college, and hopefully there will be 0:10:54.880 --> 0:10:58.199 some bridges and tunnels for him to construct once he graduates. 0:10:58.640 --> 0:11:01.720 Um garlf, I want to at your thoughts on the 0:11:01.800 --> 0:11:05.240 labor market, in particular the labor shortage that we seem 0:11:05.280 --> 0:11:07.960 to see across so many different parts of the economy. 0:11:07.960 --> 0:11:12.080 Whether it's in the um seasonal hospitality industry or the 0:11:12.120 --> 0:11:15.800 trucking industry. Everyone's saying that they're going to have to 0:11:15.800 --> 0:11:18.800 start paying workers more to get more people into these 0:11:18.880 --> 0:11:22.239 kinds of jobs. How are you thinking about wage inflation 0:11:22.360 --> 0:11:25.160 and what that means for your investments? Yeah, so, I 0:11:25.200 --> 0:11:28.640 think that the way we think about BIGE infressution is 0:11:28.720 --> 0:11:32.000 what are the temporary pressures and then what are sustainable 0:11:32.040 --> 0:11:34.920 long term pressures. On a temporary basis, there is a 0:11:34.920 --> 0:11:37.320 lot of pressure on page right. So not only is 0:11:37.320 --> 0:11:39.760 it all the segments and sectors you spoke about where 0:11:39.760 --> 0:11:43.280 there is a shortage of labor. Also the ongoing pressures 0:11:43.320 --> 0:11:47.920 to raise the minimum page. Now, the question worth while 0:11:47.960 --> 0:11:50.520 asking is that is this something that it starts in 0:11:51.480 --> 0:11:55.000 one What is this something that results in a sustainable 0:11:55.040 --> 0:11:58.920 move where we can expect to see uh, some reasonable 0:11:59.000 --> 0:12:01.600 levels of aage growth the the next three to five years. 0:12:01.760 --> 0:12:03.560 And I think that's the place where we struggle. So 0:12:03.640 --> 0:12:06.880 we do think that temporary shortages are going to be there. 0:12:07.520 --> 0:12:10.120 But as things open, as we get closer to that 0:12:10.400 --> 0:12:14.360 full employment number, we're still faced with the sustain problem 0:12:14.440 --> 0:12:16.760 that we had in some ways in the Trump administration. 0:12:16.880 --> 0:12:20.360 Right that you had full employment, you had labor shortages. 0:12:20.960 --> 0:12:24.720 You did see some page growth, but nothing that leaked 0:12:24.720 --> 0:12:27.360 its way through for there to be inflation on our 0:12:27.360 --> 0:12:32.720 more sustained basis. So I would say temporary pressures. Definitely, 0:12:32.760 --> 0:12:35.199 it's going to play itself out, and do see a 0:12:35.240 --> 0:12:37.360 bit more of a ship that coming towards labor versus 0:12:37.400 --> 0:12:41.760 capital call it. However, for it to be sustained, I 0:12:41.840 --> 0:12:44.560 think there's more investments we need to make in in 0:12:44.679 --> 0:12:48.280 fine productivity, in tech, those things duty to continue fast 0:12:48.400 --> 0:12:52.239 rates so that workers indeed can have more sustained sources 0:12:52.320 --> 0:12:55.280 of earning those pages and for us to see a 0:12:55.360 --> 0:12:58.640 sustained growth in those So mich and are selfishly wondering here, 0:12:58.920 --> 0:13:01.240 um whether that means his daughter and my son will 0:13:01.280 --> 0:13:03.560 actually be able to make a living weight and not 0:13:03.679 --> 0:13:08.280 live in our homes. I mean, I think that you know, 0:13:08.320 --> 0:13:11.160 you've also think the trend right that college educated. I 0:13:11.160 --> 0:13:14.640 think that that's an area that continues to gunner and 0:13:14.640 --> 0:13:18.560 and continues to have some reasonable level of our gaining power. 0:13:19.080 --> 0:13:21.280 So I think may the future that is the writer 0:13:33.360 --> 0:13:37.240 Scarlett's talk about dating us there with with our college 0:13:37.240 --> 0:13:42.760 bound that's really true. But I'm just impressed your son 0:13:42.880 --> 0:13:46.160 has a major picked out. My daughter's fluctuates depending on 0:13:46.360 --> 0:13:49.480 what show she has binge watching. So she's watching Gray's 0:13:49.480 --> 0:13:51.920 Anatomy for a while and wanted to be a pediatrician, 0:13:52.000 --> 0:13:54.280 and then uh moved on to something else, and I 0:13:54.280 --> 0:13:55.839 think it was FBI Agent for a while. So I 0:13:55.840 --> 0:13:57.960 gotta get her back. They need to add more seasons 0:13:58.000 --> 0:13:59.640 to Gray's Anatomy because I want to get her back 0:14:00.920 --> 0:14:06.360 back that focus. But but you know, the whole market 0:14:07.120 --> 0:14:10.920 until let's say about three weeks ago, a month ago 0:14:12.000 --> 0:14:15.160 was just entirely fixated by what we were seeing in 0:14:15.240 --> 0:14:18.760 the treasury market, and this sort of sudden jolt higher 0:14:18.960 --> 0:14:23.320 in yields fields have since cooled cooled off a little bit. Um. 0:14:23.360 --> 0:14:25.160 It kind of looks at least like a short term 0:14:25.240 --> 0:14:30.680 high possibly maybe perhaps is in um, but I wonder 0:14:30.720 --> 0:14:34.040 if that is really true. I mean, how are you 0:14:34.080 --> 0:14:37.880 thinking about yields? Um? Is this cooling off period that 0:14:37.920 --> 0:14:42.800 we're seeing here now doomed to fail or higher yields 0:14:42.840 --> 0:14:46.720 just inevitable given the the backdrop of GDP growth that 0:14:46.800 --> 0:14:50.960 we're seeing and at least a short term pickup of inflation. 0:14:51.160 --> 0:14:53.760 I mean, is this kind of a a bowl trap 0:14:53.880 --> 0:14:57.920 for for treasury fires right here? Well? I mean I 0:14:57.960 --> 0:15:01.200 think that some level of the yields going up I 0:15:01.240 --> 0:15:03.480 think has to happen with the amount of growth we're seeing. 0:15:03.480 --> 0:15:05.480 I mean, you know, on a long term basis, and 0:15:05.640 --> 0:15:08.320 your yells should be mirroring whatever is the GDP growth. 0:15:08.960 --> 0:15:11.760 The cut and pick up obviously five six for for 0:15:11.840 --> 0:15:15.200 US or six is obviously not sustainable. You start looking 0:15:15.200 --> 0:15:16.880 at for three years, you're looking again at the two 0:15:16.880 --> 0:15:19.800 two and a half percent number. So some move up 0:15:20.080 --> 0:15:23.280 definitely going to happen. The question is how much. I mean, 0:15:24.080 --> 0:15:27.800 you know, we don't see it going much beyond the 0:15:28.200 --> 0:15:29.680 at the two and a quarter or two and a half. 0:15:30.600 --> 0:15:34.440 Uh And if anything, if we saw yields broach past 0:15:34.480 --> 0:15:37.440 those levels, I actually we'll be thinking about saying, well, 0:15:37.480 --> 0:15:40.000 maybe we should extend duration and those situations. I mean, 0:15:40.080 --> 0:15:43.760 on a on a um broad basis, across the portfolios, 0:15:43.760 --> 0:15:46.920 we're under reponds, we're under a duration. But as it 0:15:46.960 --> 0:15:49.600 approaches us those levels, we think there may be room 0:15:49.680 --> 0:15:53.360 to think about buying treasuries. I mean, keep in mind 0:15:53.360 --> 0:15:57.200 that there are these long term pressures that the FED 0:15:57.360 --> 0:15:59.360 has to deal with, and some of these are political 0:15:59.360 --> 0:16:02.560 in nature too. Things. You know, we spoke about page 0:16:02.600 --> 0:16:07.200 growth the spook, but college educated um inequality continues to 0:16:07.880 --> 0:16:10.440 rise and impact through the pandemic. Some of these structural 0:16:10.480 --> 0:16:14.120 forces like inequality have increased over this period. That is 0:16:14.200 --> 0:16:16.240 going to put a lid on how much high rates 0:16:16.360 --> 0:16:18.800 the FED will tolerate. The language out of the Fed 0:16:19.480 --> 0:16:22.200 on extended stimulus and what they need to start breaking 0:16:22.280 --> 0:16:26.760 out suggest to us that you can see yields move up. 0:16:26.840 --> 0:16:28.360 There is definitely room to move up in such a 0:16:28.440 --> 0:16:32.920 robust growth environment. Not beyond certain high levels though, uh 0:16:33.200 --> 0:16:35.080 and for us that number is somewhere around you know, 0:16:35.160 --> 0:16:36.480 call it to one at quarter two and a half 0:16:37.040 --> 0:16:39.520 where we start seeing you know, the other way downward 0:16:39.520 --> 0:16:42.520 pressure occurring. The other thing to keep in mind is 0:16:42.640 --> 0:16:48.000 that much as we can have a long term various 0:16:48.120 --> 0:16:54.080 view on bonds, the fact that institutional investors on long 0:16:54.160 --> 0:16:56.680 term basis do need long duration assets just to meet 0:16:56.760 --> 0:17:00.520 their their their obligations, and the fact that still when 0:17:00.560 --> 0:17:04.159 you think about hedging against any shocks and the equity markets, 0:17:05.119 --> 0:17:09.080 the long duration treasuries are seriously your best bet. And 0:17:09.359 --> 0:17:11.320 and it's it's it's interesting that if you look at 0:17:11.359 --> 0:17:14.600 the fit of post GFC, even though we've seen all 0:17:14.600 --> 0:17:17.639 these forces play out in terms of globalization, taking a 0:17:17.720 --> 0:17:22.199 step back on a trade basis, financial globalization, the effect 0:17:22.280 --> 0:17:25.080 of the dollar has simply increased in markets. So even 0:17:25.119 --> 0:17:28.000 if you're sitting in in India today or China and 0:17:28.080 --> 0:17:30.280 you want to hedge some of these strop positions, well, 0:17:30.400 --> 0:17:33.119 US Freddy is still really good use to do that, 0:17:33.880 --> 0:17:38.960 So demand plust. The fact that that it is really 0:17:39.040 --> 0:17:42.760 one of your best diversifiers puts a lid on half 0:17:42.800 --> 0:17:46.000 far the the Treasury dells can go up. How do 0:17:46.040 --> 0:17:49.080 you see foreign demand for treasuries playing into this? I mean, 0:17:49.840 --> 0:17:51.400 I know a lot of it ties back to how 0:17:52.400 --> 0:17:55.440 different economies in the emerging markets are faring. But do 0:17:55.520 --> 0:17:58.080 you see demand from the likes of China, from Japan, 0:17:58.280 --> 0:18:02.159 from other countries around the world changing at all in 0:18:02.240 --> 0:18:06.639 the next forceable future in the next year. I know, 0:18:06.760 --> 0:18:08.920 I don't see that changing materially. I mean, I think 0:18:09.000 --> 0:18:14.560 that there is always competition as to which currency can 0:18:14.640 --> 0:18:18.359 be a strong substitute reserve to to the dollar, But 0:18:18.480 --> 0:18:22.240 really nothing has emerged in China's trying gets best to 0:18:22.800 --> 0:18:27.560 position the remember as a use of currency. We've seen 0:18:27.560 --> 0:18:29.560 the Euro do that and take away some market share, 0:18:29.880 --> 0:18:32.960 but I think still the main res of currency, the 0:18:33.040 --> 0:18:35.280 main buyer of things in the world. The fact that 0:18:35.440 --> 0:18:37.919 we still run a pretty heavy kind of down deficit 0:18:38.000 --> 0:18:41.200 here tells us that demand for US as that US 0:18:41.240 --> 0:18:44.280 treasuries is going to continue today and go fast. I 0:18:44.359 --> 0:18:46.080 think the other thing to keep in mind also is 0:18:46.160 --> 0:18:50.480 that right now, as we look from a market perspective, 0:18:50.520 --> 0:18:52.880 as we think about earnings growth, we think about growth. 0:18:52.920 --> 0:18:56.080 Everything we've been discussing so far, you know, US exceptionalism 0:18:56.119 --> 0:19:00.639 continues across the board. That means that investor is outside 0:19:00.880 --> 0:19:04.560 the US certainly demand more and more US assets. So 0:19:04.640 --> 0:19:08.119 I don't see the demand situation changing that dramatic and 0:19:08.240 --> 0:19:12.960 dramatically because of course the unique status they're enjoys it. 0:19:14.600 --> 0:19:18.520 You know, Garv, I'm famous for asking like twelve part questions, 0:19:18.640 --> 0:19:20.920 but I'm gonna take it easy on you and don't 0:19:20.920 --> 0:19:23.840 only ask a two part question. And that is because 0:19:24.600 --> 0:19:26.399 I know you guys at State Street you know a 0:19:26.480 --> 0:19:28.680 thing or two about e t f s if I'm 0:19:28.680 --> 0:19:34.320 not mistaken, And we've just seen such a massive inflow 0:19:34.560 --> 0:19:37.520 into e t f s this year, mutual funds as well, 0:19:37.600 --> 0:19:39.840 but really I popping inflows in the in the e 0:19:39.960 --> 0:19:42.320 t f s. So so two parts to that, Um, 0:19:42.440 --> 0:19:45.760 I'm curious for the first part, where is that demand 0:19:45.880 --> 0:19:47.800 coming from? You know, is it the pensions and the 0:19:47.880 --> 0:19:52.080 institutions you talked about earlier, or is it the sort 0:19:52.119 --> 0:19:55.360 of reddit in Wall Street bets crowd or isn't even 0:19:55.400 --> 0:19:58.440 all of the above, I guess perhaps. And also you know, 0:19:58.560 --> 0:20:02.520 as as as at just such as yourself, Um, you 0:20:02.560 --> 0:20:05.280 know what you're you're thinking about how you should allocate 0:20:05.880 --> 0:20:09.360 your portfolios, and we can use, you know, hypothetically useing 0:20:09.400 --> 0:20:12.959 all et F portfolio how you would advise let's just say, 0:20:13.080 --> 0:20:17.200 hypothetically a middle aged guy who's got some kids head 0:20:17.240 --> 0:20:20.320 in the college and and it's, uh, it's kind of 0:20:20.359 --> 0:20:25.480 a scarity cat a little right. So I think we've 0:20:25.560 --> 0:20:29.280 definitely seen abidening of the use of e d S. 0:20:29.320 --> 0:20:32.800 I mean, e d S has served really very strongly, 0:20:33.440 --> 0:20:36.119 certainly through crisis periods like last year, in terms of 0:20:36.160 --> 0:20:41.960 providing investors with liquidity transparent pricing, which has meant that 0:20:42.080 --> 0:20:44.640 its role has certainly expanded. So it's not it's it's 0:20:44.760 --> 0:20:48.240 certainly used for increasingly for cash actualization. We saw it 0:20:48.440 --> 0:20:50.880 use a lot for rest transfer, you know, I want 0:20:50.920 --> 0:20:52.320 to shot something, I don't want to take an a 0:20:52.400 --> 0:20:55.880 beat in the marketplace, um or kind of classic swap 0:20:55.960 --> 0:21:00.640 type arrangements that have been restricted to derivatives increasingly being 0:21:01.080 --> 0:21:05.160 media being used for for that tactical positioning. I think 0:21:05.200 --> 0:21:07.880 that's probably been an area that's the immense growth as 0:21:08.000 --> 0:21:12.240 liquidity has increased within the e d F landscape that 0:21:12.440 --> 0:21:14.440 there is a lot more of that tactical views on 0:21:14.680 --> 0:21:18.920 either a specific sector, tob sector or or of course 0:21:19.040 --> 0:21:23.040 more broadly in in markets. So that's on the on 0:21:23.119 --> 0:21:25.040 the used side of the d F in terms of 0:21:25.440 --> 0:21:28.280 how you should think about your allocation again keeping your 0:21:28.359 --> 0:21:32.840 hypothetical person in mind, so um, so you know, it's 0:21:33.040 --> 0:21:36.399 it's clearly a trade off between how much you want 0:21:36.440 --> 0:21:39.240 to be in growth versus safety assets and what do 0:21:39.240 --> 0:21:43.720 you do about income. We are biased more towards risk assets. 0:21:43.840 --> 0:21:48.960 That means equities to some extent commodities, Um, we do 0:21:49.200 --> 0:21:51.600 like those. I think we keep a structural position in 0:21:52.760 --> 0:21:55.560