1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

2
00:00:09,240 --> 00:00:13,200
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you

3
00:00:13,320 --> 00:00:18,600
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,960 --> 00:00:23,840
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,

5
00:00:23,920 --> 00:00:31,200
Speaker 1: and of course on the Bloomberg Terminal. Joining sell Mike

6
00:00:31,240 --> 00:00:34,919
Speaker 1: Wilson of Morgan Stanley, their chief US equity strate is Mike.

7
00:00:35,040 --> 00:00:37,560
Speaker 1: I want to go sixty feet on you. We have

8
00:00:37,680 --> 00:00:41,559
Speaker 1: had a stretch of disinflation from Vocer to Mike Wilson

9
00:00:41,720 --> 00:00:44,560
Speaker 1: right now. Do you sense that this is a nuance

10
00:00:44,600 --> 00:00:49,440
Speaker 1: within a bullmarket wrapped around fixed income commodities, the rest

11
00:00:49,440 --> 00:00:52,040
Speaker 1: of it, the dollar, et cetera. Or are we at

12
00:00:52,040 --> 00:00:55,400
Speaker 1: a point of a major change in the vectors to

13
00:00:55,480 --> 00:01:00,160
Speaker 1: two thousand? Well, look, I mean we get we've had

14
00:01:00,160 --> 00:01:02,120
Speaker 1: that view for a while. We felt like last year's

15
00:01:02,120 --> 00:01:05,080
Speaker 1: pandemic was the catalyst to kind of move us out

16
00:01:05,120 --> 00:01:09,440
Speaker 1: of this disinflationary, deflationary world we've been in for twenty years.

17
00:01:09,520 --> 00:01:11,760
Speaker 1: Quite frankly, a lot of other things, uh, you know,

18
00:01:11,800 --> 00:01:15,399
Speaker 1: we're happening before the pandemic, deglobalization, Uh, some of the

19
00:01:15,440 --> 00:01:18,880
Speaker 1: populous movement, which was talking about you know, inequality of

20
00:01:18,920 --> 00:01:21,440
Speaker 1: wealth and income, and that that train had already left

21
00:01:21,440 --> 00:01:24,480
Speaker 1: the station. So the pandemic, which by the way, pandemics

22
00:01:24,480 --> 00:01:28,560
Speaker 1: are typically inflationary. Um so that was a perfect foil

23
00:01:28,680 --> 00:01:31,679
Speaker 1: to get the transition from monetary policy dominance to fiscal

24
00:01:31,720 --> 00:01:35,200
Speaker 1: policy dominance. And it's begun. And normally it happens with

25
00:01:35,200 --> 00:01:37,520
Speaker 1: with what I call a kickoff move tom. When you

26
00:01:37,560 --> 00:01:40,000
Speaker 1: see big trends change, you get a big kickoff move

27
00:01:40,040 --> 00:01:42,840
Speaker 1: and that's what we've seen in all the inflation indicators.

28
00:01:43,040 --> 00:01:45,880
Speaker 1: My best guess is it will settle down, but then

29
00:01:45,760 --> 00:01:48,400
Speaker 1: the trend is changing, and so it's gonna be a

30
00:01:48,400 --> 00:01:50,640
Speaker 1: long journey ahead. You know, it took us thirty five

31
00:01:50,680 --> 00:01:52,640
Speaker 1: years to get here, It's gonna take us thirty five

32
00:01:52,720 --> 00:01:54,440
Speaker 1: years probably get to the peak and rates. It's gonna

33
00:01:54,440 --> 00:01:57,280
Speaker 1: be a slow moving train. And you know, essentially what

34
00:01:57,320 --> 00:02:00,680
Speaker 1: before I'm saying is by the dips on inflation, Mike,

35
00:02:00,760 --> 00:02:03,040
Speaker 1: the equity market, you're looking for a ten percent move

36
00:02:03,160 --> 00:02:06,200
Speaker 1: lower on the SP five hundred. We've had five percentage

37
00:02:06,200 --> 00:02:09,359
Speaker 1: points off it. Are you seeing with increasing confidence? It

38
00:02:09,400 --> 00:02:11,480
Speaker 1: could be worse than that. It could drift towards that

39
00:02:11,560 --> 00:02:14,440
Speaker 1: other level you were looking for. Move if you are.

40
00:02:14,520 --> 00:02:18,320
Speaker 1: Why Yeah, Johnny, last time we chatted about this, this

41
00:02:18,480 --> 00:02:21,120
Speaker 1: is kind of after we made that lean h It

42
00:02:21,200 --> 00:02:24,680
Speaker 1: was prior to the situation in in China with the

43
00:02:24,680 --> 00:02:28,000
Speaker 1: property development company, and you know, like I think what

44
00:02:28,120 --> 00:02:31,440
Speaker 1: happened here is uh, you know, we we've got more

45
00:02:31,520 --> 00:02:34,000
Speaker 1: data on the idea that not only are we getting

46
00:02:34,040 --> 00:02:36,360
Speaker 1: a you know, a tightening of financial conditions from the

47
00:02:36,360 --> 00:02:40,400
Speaker 1: FED lower multiples, were also getting a greater slow down

48
00:02:40,440 --> 00:02:44,000
Speaker 1: than perhaps is expected. Now we're seeing the earnings numbers.

49
00:02:44,280 --> 00:02:45,959
Speaker 1: You guys have been talking about the cost pressures to

50
00:02:46,040 --> 00:02:49,359
Speaker 1: supply issues in constraints, but there's also this payback in

51
00:02:49,480 --> 00:02:52,079
Speaker 1: demand thesis that we've had for quite a while. Our

52
00:02:52,120 --> 00:02:54,440
Speaker 1: cost thesis is playing out now. People are aware of it,

53
00:02:54,800 --> 00:02:57,040
Speaker 1: but I don't think they really appreciate how much payback

54
00:02:57,080 --> 00:02:58,720
Speaker 1: and demand there's going to be in these areas that

55
00:02:58,760 --> 00:03:01,799
Speaker 1: we over consumed. Okay, so the bottom line for us

56
00:03:01,880 --> 00:03:04,799
Speaker 1: is that risk has increased um and you know we're

57
00:03:04,840 --> 00:03:07,840
Speaker 1: center base case yet, but but clearly moving that way. Mike,

58
00:03:07,919 --> 00:03:09,800
Speaker 1: touch on this, you've touched on it, briefly built on it.

59
00:03:09,840 --> 00:03:12,760
Speaker 1: For us, what we've seen over the last several months,

60
00:03:12,760 --> 00:03:16,320
Speaker 1: has been so well flagged, it talked about so much,

61
00:03:16,800 --> 00:03:20,720
Speaker 1: so well known, and yet clearly from your perspective, poorly priced. Mike,

62
00:03:20,720 --> 00:03:24,280
Speaker 1: Why is that? Well, it's that poorly priced at the

63
00:03:24,280 --> 00:03:26,360
Speaker 1: stock and sector level, right. I mean, we've talked about

64
00:03:26,360 --> 00:03:28,320
Speaker 1: this too, John. I mean, it's roll. It's been basically

65
00:03:28,360 --> 00:03:31,440
Speaker 1: a rolling correction since March, you know, that's when we

66
00:03:31,520 --> 00:03:34,640
Speaker 1: made the mid cycle transition call. The market has moved

67
00:03:34,760 --> 00:03:38,880
Speaker 1: aggressively towards high quality, large camp high quality in particular.

68
00:03:39,320 --> 00:03:41,800
Speaker 1: And what the market is saying is that we're you know,

69
00:03:41,840 --> 00:03:45,920
Speaker 1: we're getting taking shelter. You know, the market, Uh, it's

70
00:03:45,920 --> 00:03:48,760
Speaker 1: got to own something, right, And what happens is people

71
00:03:48,840 --> 00:03:51,560
Speaker 1: moved to you know, the highest parts of the land

72
00:03:51,600 --> 00:03:54,000
Speaker 1: away from the flood, and that's what the high quality

73
00:03:54,040 --> 00:03:57,080
Speaker 1: stocks are. Typically, when you get to the point that

74
00:03:57,200 --> 00:03:59,560
Speaker 1: the moment of truth, which is now, which is where

75
00:03:59,600 --> 00:04:02,200
Speaker 1: the yearning start to get cut and where the FED

76
00:04:02,360 --> 00:04:06,720
Speaker 1: actually you know, moved to Titan, then even the high

77
00:04:06,840 --> 00:04:09,800
Speaker 1: shelter areas are no longer protected. And that's how the

78
00:04:09,800 --> 00:04:12,600
Speaker 1: mid cycle transition. And so I mean the script is

79
00:04:12,640 --> 00:04:15,360
Speaker 1: really playing how to a t uh, you know, it's

80
00:04:15,360 --> 00:04:18,679
Speaker 1: hard to trade is black cross currents. But generally speaking,

81
00:04:19,160 --> 00:04:21,039
Speaker 1: we're right on scheduled and should finish up in the

82
00:04:21,040 --> 00:04:24,039
Speaker 1: fourth courter. As you said, the rolling correction since March

83
00:04:24,160 --> 00:04:26,240
Speaker 1: has left a lot of big stocks, like big tech

84
00:04:26,320 --> 00:04:31,120
Speaker 1: stocks down substantially. If we get a full correction here,

85
00:04:31,320 --> 00:04:33,880
Speaker 1: what will be the drivers of that given how significant

86
00:04:33,920 --> 00:04:35,919
Speaker 1: the correction has already been in some of the major

87
00:04:35,960 --> 00:04:40,040
Speaker 1: components of the indexes. Well, Lisa, but I mean, quite frankly,

88
00:04:40,040 --> 00:04:43,120
Speaker 1: I mean that you know, those stocks benefited tremendously from

89
00:04:43,240 --> 00:04:46,360
Speaker 1: March until recently, so they had a huge move up

90
00:04:46,839 --> 00:04:49,600
Speaker 1: and that's what's held the averages up. Um. So now

91
00:04:49,640 --> 00:04:52,520
Speaker 1: they're going to have their come up and and and

92
00:04:52,560 --> 00:04:54,320
Speaker 1: they may not even go back to where they were

93
00:04:54,520 --> 00:04:56,919
Speaker 1: in March, and that would be a big drop. But

94
00:04:56,960 --> 00:04:59,520
Speaker 1: they're gonna have to go down if the major indussees

95
00:04:59,800 --> 00:05:02,239
Speaker 1: are gonna have this ten to correction, and that should

96
00:05:02,240 --> 00:05:04,680
Speaker 1: happen anyways, because you know, quite frankly, those stocks are

97
00:05:04,720 --> 00:05:08,120
Speaker 1: most vulnerable to a tightening of financial conditions, and that

98
00:05:08,240 --> 00:05:10,400
Speaker 1: all of them, but I think several of those companies

99
00:05:10,560 --> 00:05:14,080
Speaker 1: are also vulnerable to this payback and demand from the

100
00:05:14,160 --> 00:05:17,000
Speaker 1: overconsumption during the work from home period. So what's the

101
00:05:17,120 --> 00:05:18,960
Speaker 1: driver then? Is it going to be just a direct

102
00:05:19,040 --> 00:05:21,839
Speaker 1: yield correlation story that basically as yields go up, the

103
00:05:21,880 --> 00:05:23,839
Speaker 1: big tech stocks sell off, or is there going to

104
00:05:23,839 --> 00:05:27,120
Speaker 1: be an earnings component as well? Yeah, I think it's both.

105
00:05:27,120 --> 00:05:29,640
Speaker 1: I mean, that's the fire and ice you know scenario. Right.

106
00:05:29,680 --> 00:05:33,640
Speaker 1: The fire is basically the tightening financial conditions, multiples come down,

107
00:05:33,920 --> 00:05:35,039
Speaker 1: and then to get a little bit of ice on

108
00:05:35,080 --> 00:05:37,159
Speaker 1: the back end of that, the deceleration as you always

109
00:05:37,200 --> 00:05:40,599
Speaker 1: get at this stage of the academic cycle is normal. Now,

110
00:05:40,640 --> 00:05:44,039
Speaker 1: normally what happens is, you know, earns continue to go up.

111
00:05:44,560 --> 00:05:47,640
Speaker 1: But because the amplitude of this, you know, recession recovery,

112
00:05:47,680 --> 00:05:50,680
Speaker 1: we're so dramatic, you have to assume that the mid

113
00:05:50,680 --> 00:05:55,159
Speaker 1: cycle transition deceleration will be more or larger than average. Okay,

114
00:05:55,240 --> 00:05:59,200
Speaker 1: I mean to think otherwise would just be intellectually dishonest. Micaer,

115
00:05:59,320 --> 00:06:02,040
Speaker 1: We finally at a point where we've been so wrong

116
00:06:02,080 --> 00:06:06,760
Speaker 1: about single digit actual assumption ten year sp X fifteen

117
00:06:06,800 --> 00:06:10,839
Speaker 1: point seven percent per year. Can you tell your team

118
00:06:10,839 --> 00:06:15,000
Speaker 1: at Morgan Stanley the single digit equity return world is

119
00:06:15,080 --> 00:06:18,400
Speaker 1: finally upon us? Yeah, I mean, look, I mean it's

120
00:06:18,400 --> 00:06:20,640
Speaker 1: it's interesting, Tom, and I'm thinking you understand this, but

121
00:06:20,800 --> 00:06:23,640
Speaker 1: you know it's it's it's easier to predict stock returns

122
00:06:23,720 --> 00:06:26,560
Speaker 1: over a seven year period than it is over a

123
00:06:26,600 --> 00:06:29,479
Speaker 1: one year period. Why is that because over seven years,

124
00:06:29,960 --> 00:06:33,279
Speaker 1: the value, you know, your starting valuation comes to fuition. Okay,

125
00:06:33,320 --> 00:06:36,320
Speaker 1: you can't you can't avoid that. You know, your returns,

126
00:06:36,920 --> 00:06:39,880
Speaker 1: your your actual returns over seven year period are contingent

127
00:06:39,920 --> 00:06:42,640
Speaker 1: upon the price you pay. And we all know assets

128
00:06:42,640 --> 00:06:45,159
Speaker 1: are expensive right now, whether you're talking about bonds which

129
00:06:45,160 --> 00:06:48,719
Speaker 1: are being financially repressed, or stocks or any asset that's

130
00:06:48,720 --> 00:06:51,760
Speaker 1: tied to a ten your treasury yield which is artificially low.

131
00:06:52,320 --> 00:06:55,359
Speaker 1: So yeah, I mean the starting point is poor on

132
00:06:55,400 --> 00:06:59,280
Speaker 1: a seven year basis, and so it's it's high conviction.

133
00:06:59,360 --> 00:07:01,839
Speaker 1: And this is not a call, by the way, high conviction.

134
00:07:01,880 --> 00:07:04,480
Speaker 1: It's a single digit return out Look, Okay, not the

135
00:07:04,520 --> 00:07:06,279
Speaker 1: end of the world, but I mean that's what financial

136
00:07:06,279 --> 00:07:08,560
Speaker 1: oppression is. I mean, that's that's the world we're in.

137
00:07:09,040 --> 00:07:11,880
Speaker 1: Lower returns. It's not the end of the world, but

138
00:07:11,960 --> 00:07:14,240
Speaker 1: you know that's a fact. Mike, trying to catch up

139
00:07:14,240 --> 00:07:16,320
Speaker 1: has always gotta work through this together. Through a key

140
00:07:16,360 --> 00:07:18,960
Speaker 1: forum workout went to buy this market. My Wilson, that

141
00:07:19,160 --> 00:07:27,840
Speaker 1: of Morgan Stanley, chief US equity strategist, and c I oh,

142
00:07:28,360 --> 00:07:31,840
Speaker 1: speaking of Bloom, that means Washington. Andy Blocker joins us

143
00:07:31,880 --> 00:07:35,440
Speaker 1: right now with Invesco, Head of US Government Affairs. Andy,

144
00:07:35,560 --> 00:07:38,000
Speaker 1: I love what you say. We've seen this movie before.

145
00:07:38,120 --> 00:07:41,000
Speaker 1: I'm not sure. I doubt I believe it is a

146
00:07:41,040 --> 00:07:46,840
Speaker 1: negotiation or compromise that we see this movie before. So

147
00:07:47,520 --> 00:07:51,720
Speaker 1: generally speaking, yes, but in specifics it's uncertain. Look, first

148
00:07:51,760 --> 00:07:53,680
Speaker 1: of all, let's just say, look, we we kept the

149
00:07:53,720 --> 00:07:56,440
Speaker 1: government open. Okay, hooray, We're gonna be the open sil

150
00:07:56,480 --> 00:07:59,440
Speaker 1: December third. But on this five part of the infrastructure bill,

151
00:08:00,040 --> 00:08:03,240
Speaker 1: I think there's a real tension between the moderates and

152
00:08:03,320 --> 00:08:06,280
Speaker 1: the liberals and the Democratic Party, and the question is

153
00:08:06,680 --> 00:08:10,120
Speaker 1: are they gonna hang together or they're gonna hang separately? Well,

154
00:08:10,120 --> 00:08:12,400
Speaker 1: I mean, I mean give us a historic precedent here.

155
00:08:12,440 --> 00:08:15,119
Speaker 1: I mean, what do they do? I've never I don't

156
00:08:15,120 --> 00:08:18,160
Speaker 1: believe there's any negotiation going on. They're just getting the

157
00:08:18,280 --> 00:08:22,880
Speaker 1: deadlines and away we go. Do you perceive true negotiation

158
00:08:23,240 --> 00:08:28,760
Speaker 1: in a fractious Democratic Party? Yes? I do. I think Look,

159
00:08:28,800 --> 00:08:31,200
Speaker 1: this is part of the sausage making process of Washington.

160
00:08:31,280 --> 00:08:34,360
Speaker 1: That part hasn't changed, and their political interests at the

161
00:08:34,440 --> 00:08:37,280
Speaker 1: end of the day are aligned. They need to help

162
00:08:37,280 --> 00:08:40,640
Speaker 1: President Biden here. He needs a win. Um, he's been

163
00:08:40,640 --> 00:08:43,040
Speaker 1: taking on water since the summer because of the delta

164
00:08:43,160 --> 00:08:47,400
Speaker 1: variant surge and also because of difficulty in Afghanistan without

165
00:08:47,480 --> 00:08:50,400
Speaker 1: him raising its political standings, showing that he can actually

166
00:08:50,440 --> 00:08:53,599
Speaker 1: get something done for the American people do it in

167
00:08:53,640 --> 00:08:57,000
Speaker 1: a bipartisan way. Ultimately, he's really going to have a

168
00:08:57,040 --> 00:09:00,320
Speaker 1: tough time and still Democrats with him. Andy, We're hearing

169
00:09:00,360 --> 00:09:03,360
Speaker 1: reports of Nancy Pelosi on the halls of Washington, d C.

170
00:09:03,480 --> 00:09:06,640
Speaker 1: In the halls of Congress on her phone NonStop morning

171
00:09:06,720 --> 00:09:09,959
Speaker 1: and night. There is a new feeling of concern among

172
00:09:10,040 --> 00:09:14,240
Speaker 1: Democratic leaders right now of wrangling their party together. When

173
00:09:14,280 --> 00:09:16,920
Speaker 1: you talk to people, is this a new level of

174
00:09:16,920 --> 00:09:22,280
Speaker 1: concern that they cannot get anything done? So it is heightened.

175
00:09:22,320 --> 00:09:25,440
Speaker 1: I will say that, Um, it's to two things are different.

176
00:09:25,520 --> 00:09:28,880
Speaker 1: Number One, Normally what happens is what it's the Republican

177
00:09:28,880 --> 00:09:32,320
Speaker 1: Party and Democratic Party. The more conservatives and the Republican

178
00:09:32,360 --> 00:09:35,480
Speaker 1: Party or the more liberals in the Democratic Party will

179
00:09:35,600 --> 00:09:37,199
Speaker 1: roll the moderates and say, look, we need you to

180
00:09:37,280 --> 00:09:40,560
Speaker 1: vote for this, just take the hit. What different now,

181
00:09:40,679 --> 00:09:43,760
Speaker 1: democratic side is that the monitor actually standing up and saying, look,

182
00:09:43,760 --> 00:09:45,160
Speaker 1: I don't want to take a difficult vote in the

183
00:09:45,160 --> 00:09:46,800
Speaker 1: House that I know the Senate is not going to

184
00:09:46,880 --> 00:09:50,000
Speaker 1: vote for. And so that's creating this tension where normally

185
00:09:50,040 --> 00:09:52,360
Speaker 1: they just take the vote in the House, sucking up

186
00:09:52,480 --> 00:09:54,199
Speaker 1: liberal get what they want, but then the Senate comes

187
00:09:54,240 --> 00:09:56,920
Speaker 1: back and ve it back. What's going on now monitors

188
00:09:56,960 --> 00:09:59,520
Speaker 1: saying look, I don't want to be um like we've

189
00:09:59,559 --> 00:10:02,960
Speaker 1: seen in pass where it was with the BTU tax

190
00:10:03,120 --> 00:10:06,640
Speaker 1: with Marjorie Margos with Sinskey walking down taking that tough

191
00:10:06,720 --> 00:10:08,720
Speaker 1: vote on the BTU text and they knew the Senate

192
00:10:08,800 --> 00:10:11,920
Speaker 1: wasn't gonna vote on and she lost her race. We've

193
00:10:11,960 --> 00:10:14,920
Speaker 1: seen that happened many many times. And so that's gonna

194
00:10:14,920 --> 00:10:17,240
Speaker 1: be the cruxes modern tolding the line thing, I don't

195
00:10:17,240 --> 00:10:18,920
Speaker 1: want to take this toff vote in the House versus

196
00:10:19,200 --> 00:10:22,719
Speaker 1: liberals who are being very very bold here and saying look,

197
00:10:22,720 --> 00:10:25,640
Speaker 1: I'm almost willing to take down this agenda, this entire agenda,

198
00:10:25,720 --> 00:10:27,800
Speaker 1: unless I get what I want. Meanwhile, Andy, a lot

199
00:10:27,840 --> 00:10:29,559
Speaker 1: of people are looking at the softness and markets, and

200
00:10:29,600 --> 00:10:31,360
Speaker 1: they're saying part of it is driven by but just

201
00:10:31,400 --> 00:10:34,319
Speaker 1: peak recovery and the idea of slowing growth. The other

202
00:10:34,440 --> 00:10:36,800
Speaker 1: is driven by policy uncertainty and this fear that we

203
00:10:36,840 --> 00:10:39,720
Speaker 1: potentially could head to some sort of default, some sort

204
00:10:39,800 --> 00:10:42,439
Speaker 1: of disruption in the lack of fiscal spending that was

205
00:10:42,520 --> 00:10:46,080
Speaker 1: largely expected given the year. At the intersection of markets

206
00:10:46,360 --> 00:10:49,680
Speaker 1: and of government affairs, what's the biggest concern you here

207
00:10:49,800 --> 00:10:53,480
Speaker 1: internally in terms of policy uncertainty. Is it them getting

208
00:10:53,520 --> 00:10:55,920
Speaker 1: something done that is too big, is it not getting

209
00:10:55,960 --> 00:11:00,480
Speaker 1: something done, or is it a default? So up ago,

210
00:11:00,679 --> 00:11:04,840
Speaker 1: I would have put the fault higher up because Republicans

211
00:11:04,840 --> 00:11:06,520
Speaker 1: it made it clear that in the Senate they weren't

212
00:11:06,520 --> 00:11:09,320
Speaker 1: going to due bipartisan deal, which they've done recently. That

213
00:11:09,400 --> 00:11:12,400
Speaker 1: put all the onus on Democrats in But now that

214
00:11:12,600 --> 00:11:15,120
Speaker 1: the Democrats, I think no. Now I've seen some comments

215
00:11:15,160 --> 00:11:17,480
Speaker 1: from some members, especially in the House, saying, look, we're

216
00:11:17,480 --> 00:11:20,080
Speaker 1: gonna go through this Dog and Tony show. We're gonna

217
00:11:20,120 --> 00:11:22,560
Speaker 1: try to force the republic to take a few bad votes.

218
00:11:22,600 --> 00:11:23,880
Speaker 1: But even the day they know they're gonna have to

219
00:11:23,920 --> 00:11:27,199
Speaker 1: do their own little reconciliation package paths the debt selling

220
00:11:27,280 --> 00:11:30,600
Speaker 1: raised on their own, so that I think it's gonna

221
00:11:30,600 --> 00:11:32,520
Speaker 1: be off the table by mid October. I think we're

222
00:11:32,520 --> 00:11:35,160
Speaker 1: on a path to get that done. The bigger issue

223
00:11:35,240 --> 00:11:39,800
Speaker 1: for us is how big is this um feature within

224
00:11:39,840 --> 00:11:42,720
Speaker 1: the Democratic Party. Is it so big that that liberal

225
00:11:42,800 --> 00:11:46,120
Speaker 1: Democrats are going to crush the ability to get this

226
00:11:46,200 --> 00:11:49,200
Speaker 1: bipartisan infrastructure bill just so they get the number on

227
00:11:49,200 --> 00:11:54,000
Speaker 1: the reconciliation or are they going to ultimately you're being

228
00:11:54,040 --> 00:11:56,280
Speaker 1: way too kind, are there? You know you're down there

229
00:11:56,280 --> 00:11:59,440
Speaker 1: in the Beltway drinking the kool aid? Are the liberals

230
00:11:59,440 --> 00:12:03,960
Speaker 1: of the democ Credit Party handing the Republicans majorities in

231
00:12:04,000 --> 00:12:08,640
Speaker 1: the Senate in the House if they thank the biparsed

232
00:12:08,679 --> 00:12:15,320
Speaker 1: infrastructure bill? Yes, that's the answer. Okay, So moving forward,

233
00:12:15,520 --> 00:12:17,680
Speaker 1: what are you watching in terms of deadlines with respect

234
00:12:17,800 --> 00:12:20,560
Speaker 1: to getting something done? Because right now it seems like

235
00:12:20,600 --> 00:12:23,280
Speaker 1: the progressive wing is pretty entrenched and uh and Nancy

236
00:12:23,320 --> 00:12:27,600
Speaker 1: Plosi is not going to get any Republicans on her side. Yeah,

237
00:12:27,640 --> 00:12:29,280
Speaker 1: so I don't think Republicans are going to lend a

238
00:12:29,360 --> 00:12:31,920
Speaker 1: helping hand here. I think Democrats are going to have

239
00:12:31,960 --> 00:12:34,480
Speaker 1: to show, whether it's today or week from now or

240
00:12:34,480 --> 00:12:38,319
Speaker 1: whenever they have the votes to get the BIPARS infrastructure

241
00:12:38,360 --> 00:12:40,600
Speaker 1: bill on their own. Once they do that, once they

242
00:12:40,600 --> 00:12:43,400
Speaker 1: show that vote, usually a pose of the Republicans run

243
00:12:43,480 --> 00:12:45,080
Speaker 1: to vote for this, but they're not going to be

244
00:12:45,080 --> 00:12:47,559
Speaker 1: the deciding vote to put the Democrats over the top.

245
00:12:48,080 --> 00:12:52,760
Speaker 1: So the question is can Nancy Pelosi corral the Democrats,

246
00:12:52,840 --> 00:12:55,839
Speaker 1: both Warters and Liberals to say, Hey, we're gonna vote

247
00:12:55,840 --> 00:12:59,000
Speaker 1: on this thing today. The couple this, trust this, We're

248
00:12:59,000 --> 00:13:02,400
Speaker 1: gonna get you your reconciliation package with all the goodies

249
00:13:02,440 --> 00:13:04,800
Speaker 1: that you want. Um, And that's the key tout for

250
00:13:04,800 --> 00:13:07,440
Speaker 1: the day. Andy, thank you. I'm gonna leave it there.

251
00:13:07,480 --> 00:13:09,960
Speaker 1: We appreciate your insights. Come back soon and he block

252
00:13:10,320 --> 00:13:18,800
Speaker 1: invest ahead of US government affairs. The gloom this morning,

253
00:13:18,920 --> 00:13:21,360
Speaker 1: the journey of gloom that we've been on him to

254
00:13:21,480 --> 00:13:25,520
Speaker 1: queue for has been substantial. James Sweeney parachutes in less

255
00:13:25,520 --> 00:13:28,960
Speaker 1: Gloomy with Credit Sweez and their chief economist, James, I'm

256
00:13:29,000 --> 00:13:32,000
Speaker 1: gonna go right to where you went with your global note,

257
00:13:32,520 --> 00:13:35,319
Speaker 1: which is j. Pulaski. A T. T P W is

258
00:13:35,360 --> 00:13:39,320
Speaker 1: on the same page, is James Sweeney. The gloom about

259
00:13:39,360 --> 00:13:45,319
Speaker 1: Asia and China is overwrought discussed well. Asia has contracted

260
00:13:45,400 --> 00:13:49,640
Speaker 1: an industrial production term since early this year, but as

261
00:13:49,679 --> 00:13:54,040
Speaker 1: we got into early summer, it was contracting so significantly

262
00:13:54,640 --> 00:13:56,960
Speaker 1: that it's likely things are gonna get a little bit

263
00:13:56,960 --> 00:13:59,240
Speaker 1: better in the near term. A lot of that weakness

264
00:13:59,600 --> 00:14:04,320
Speaker 1: was due to idiosyncratic factors, short term shutdowns of activity

265
00:14:04,320 --> 00:14:08,160
Speaker 1: because of the virus supply side situations. Now we might

266
00:14:08,200 --> 00:14:11,080
Speaker 1: be short on chips relative to where we want to

267
00:14:11,080 --> 00:14:14,440
Speaker 1: be globally for the next eighteen months, but we're gonna

268
00:14:14,480 --> 00:14:17,040
Speaker 1: have periods where there's no chips and production can't happen,

269
00:14:17,360 --> 00:14:19,800
Speaker 1: and periods where some is gonna come in and production

270
00:14:19,840 --> 00:14:21,880
Speaker 1: is going to be really fast. And I think late

271
00:14:21,880 --> 00:14:25,640
Speaker 1: spring just happened to be a period where production really

272
00:14:25,640 --> 00:14:29,280
Speaker 1: shut down and fell in Asia and reduced for some

273
00:14:29,400 --> 00:14:32,320
Speaker 1: short term re acceleration. I think we've had a global

274
00:14:32,760 --> 00:14:36,840
Speaker 1: trough in the growth rate of industrial production this summer,

275
00:14:36,920 --> 00:14:38,960
Speaker 1: and it will be rebounding in the second half of

276
00:14:39,000 --> 00:14:41,760
Speaker 1: the year. Even though you know some of the some

277
00:14:41,880 --> 00:14:44,680
Speaker 1: of the troubles and worries about China and housing are

278
00:14:44,760 --> 00:14:47,680
Speaker 1: significant over a longer period, you have shown me over

279
00:14:47,800 --> 00:14:51,280
Speaker 1: well in excess of ten years, a great optimism you

280
00:14:51,440 --> 00:14:56,880
Speaker 1: are a glass half full guy. Push against the some gloom, John,

281
00:14:57,000 --> 00:15:00,160
Speaker 1: Lisa and I have heard this morning. Well, you know,

282
00:15:00,400 --> 00:15:03,480
Speaker 1: right now, economic data are all over the place because

283
00:15:03,520 --> 00:15:07,600
Speaker 1: the pandemic has done strange things to the data. One

284
00:15:07,640 --> 00:15:09,400
Speaker 1: of the strange things is that these p M I

285
00:15:09,560 --> 00:15:12,240
Speaker 1: s like the I S M today have been much

286
00:15:12,360 --> 00:15:15,560
Speaker 1: less correlated with industrial activity than they have. So one

287
00:15:15,600 --> 00:15:17,280
Speaker 1: thing that drives me clar hazy is when I read

288
00:15:17,320 --> 00:15:20,960
Speaker 1: in a newspaper that manufacturing just spell in Country X

289
00:15:21,480 --> 00:15:24,160
Speaker 1: because the survey fell by two points. Well, we have

290
00:15:24,320 --> 00:15:28,080
Speaker 1: real data on manufacturing in that country, and and you know,

291
00:15:28,240 --> 00:15:31,400
Speaker 1: basically the real data and surveys have not been correlated.

292
00:15:31,680 --> 00:15:34,560
Speaker 1: Actual production has been pretty weak, but in my view,

293
00:15:34,760 --> 00:15:37,360
Speaker 1: actually it's going to be re accelerating from here. Demand

294
00:15:37,480 --> 00:15:42,240
Speaker 1: is strong, inventories are low, businesses are ready to invest globally. Yes,

295
00:15:42,320 --> 00:15:46,640
Speaker 1: we're worried about further COVID, Yes we're worried about China housing,

296
00:15:47,080 --> 00:15:49,000
Speaker 1: but we should we should do better than we did

297
00:15:49,120 --> 00:15:51,840
Speaker 1: in the Lake. You two, James, we are confusing the

298
00:15:51,920 --> 00:15:54,520
Speaker 1: pace of the journey with the direction of travel. And

299
00:15:54,600 --> 00:15:56,080
Speaker 1: tell him that's what I want to hit some because

300
00:15:56,120 --> 00:15:57,720
Speaker 1: t K I keep hearing the same word again and

301
00:15:57,760 --> 00:16:01,600
Speaker 1: again and again this morning. Thankshilation, Yes, yeah, this is yeah.

302
00:16:01,600 --> 00:16:03,400
Speaker 1: I mean John, it's so good to have Jim James

303
00:16:03,440 --> 00:16:05,760
Speaker 1: Sweeney with us. James wigh in on that that word

304
00:16:05,880 --> 00:16:09,160
Speaker 1: is getting thrown around at the moment so casually. I

305
00:16:09,240 --> 00:16:11,160
Speaker 1: mean the pace of the journey. The markets move in

306
00:16:11,200 --> 00:16:13,520
Speaker 1: the short run with the pace of the journey almost always,

307
00:16:13,600 --> 00:16:16,720
Speaker 1: and the narratives and the fears move with the pace. Recently,

308
00:16:16,800 --> 00:16:19,240
Speaker 1: the pace has been weak, so everyone's panicking now and

309
00:16:19,280 --> 00:16:22,160
Speaker 1: telling doom and gloom stories. In terms of the destination

310
00:16:22,240 --> 00:16:25,280
Speaker 1: where we're going, You're absolutely right, We're going up. Inventories

311
00:16:25,320 --> 00:16:29,520
Speaker 1: are low. Demand is good, Social distancing is being reduced globally,

312
00:16:29,920 --> 00:16:33,160
Speaker 1: and as a service sector comes back, employment will grow,

313
00:16:33,680 --> 00:16:37,040
Speaker 1: as as industrial production comes back, and as these supply

314
00:16:37,160 --> 00:16:40,520
Speaker 1: side issues gradually fixed themselves. Now we're also going to have,

315
00:16:40,680 --> 00:16:43,280
Speaker 1: you know, downward pressure on some of these goods price

316
00:16:43,400 --> 00:16:46,560
Speaker 1: inflation shocks that we've had, and almost all of these

317
00:16:46,600 --> 00:16:50,960
Speaker 1: developments are different from ordinary kind of just after the

318
00:16:51,040 --> 00:16:55,200
Speaker 1: recession type dynamics. The pandemic is weird. It's not a recession,

319
00:16:55,320 --> 00:16:58,240
Speaker 1: it's an asterix. It's a different kind of event, and

320
00:16:58,520 --> 00:17:01,479
Speaker 1: we have to be careful in jumping to strong conclusions

321
00:17:01,520 --> 00:17:04,720
Speaker 1: about strange behavior in p M I S or inflation

322
00:17:05,040 --> 00:17:07,840
Speaker 1: or any of these indicators and stead inflation. Don't get

323
00:17:07,880 --> 00:17:10,000
Speaker 1: me started. It's a silly hypothesis. Well I want to

324
00:17:10,040 --> 00:17:12,200
Speaker 1: start that, James, because I think it's important. It's a word,

325
00:17:12,280 --> 00:17:15,520
Speaker 1: it's being used. People are throwing it around. And let's

326
00:17:15,520 --> 00:17:17,680
Speaker 1: be clear here, I'm not talking about just anyone. I'm

327
00:17:17,680 --> 00:17:21,960
Speaker 1: talking about economists, PhD, economists on Wall Street throwing that

328
00:17:22,080 --> 00:17:25,119
Speaker 1: word around, confusing the pace of the journey with the

329
00:17:25,200 --> 00:17:28,679
Speaker 1: direction to travel. How powerful is a word, even if

330
00:17:28,720 --> 00:17:31,760
Speaker 1: it's being used in the wrong way. Well, I mean,

331
00:17:31,840 --> 00:17:34,359
Speaker 1: if you get if you get some data surprises momentarily

332
00:17:34,480 --> 00:17:37,400
Speaker 1: in the same direction as you're worried about significant downside risks,

333
00:17:37,440 --> 00:17:39,720
Speaker 1: you could have big market moves, and markets can divert

334
00:17:40,119 --> 00:17:43,920
Speaker 1: diverge from the reality UM meaningfully. But the bottom line

335
00:17:44,720 --> 00:17:47,280
Speaker 1: is that GDP is actually growing decently in the US

336
00:17:47,359 --> 00:17:50,240
Speaker 1: and globally right now, is expected to continue to do

337
00:17:50,400 --> 00:17:54,159
Speaker 1: that for the foreseeable future. UM. And so there's a

338
00:17:54,200 --> 00:17:55,840
Speaker 1: lot of growth. I mean, we're we're not at a

339
00:17:56,000 --> 00:17:59,040
Speaker 1: level of activity that we're happy with yet. UM. An

340
00:17:59,080 --> 00:18:03,560
Speaker 1: industrial act. It's actually you're sort of there. In good consumption,

341
00:18:03,600 --> 00:18:06,160
Speaker 1: you're actually beyond there and probably coming down a little

342
00:18:06,160 --> 00:18:07,959
Speaker 1: bit because they sent these huge checks out a few

343
00:18:08,000 --> 00:18:11,480
Speaker 1: months ago. In services consumption, you're not there yet, and

344
00:18:11,600 --> 00:18:14,040
Speaker 1: you're coming up because we have to end this pandemic

345
00:18:14,480 --> 00:18:16,159
Speaker 1: and get some distancing. But when you add all that

346
00:18:16,280 --> 00:18:19,280
Speaker 1: messy stuff up up, you have good growth. You have

347
00:18:19,400 --> 00:18:22,440
Speaker 1: good growth ahead, and you're gonna return to a proper

348
00:18:22,600 --> 00:18:25,240
Speaker 1: level of employment and a proper level of economic activity.

349
00:18:25,680 --> 00:18:27,760
Speaker 1: I just don't see the contraction in that. But James

350
00:18:27,840 --> 00:18:29,639
Speaker 1: is this really does go back to the point of

351
00:18:29,840 --> 00:18:32,919
Speaker 1: trying to compare, for example, ever Grand to two thousand

352
00:18:32,960 --> 00:18:36,160
Speaker 1: and eight or two thousands and John was talking about

353
00:18:36,200 --> 00:18:38,520
Speaker 1: why does it have to be such a catastrophic comparison

354
00:18:39,240 --> 00:18:42,200
Speaker 1: rather than just something that could be negative but not

355
00:18:42,320 --> 00:18:47,880
Speaker 1: necessarily potentially catastrophic. Are we talking about disinflation that could

356
00:18:47,960 --> 00:18:51,840
Speaker 1: be really problematic for specific sectors, even if it's not

357
00:18:52,040 --> 00:18:56,399
Speaker 1: exactly stagflation. I mean, I think there's a margin story.

358
00:18:56,520 --> 00:18:59,080
Speaker 1: I think for some sectors. I think these goods price

359
00:18:59,160 --> 00:19:00,920
Speaker 1: overshoots are going to be coming down, so are gonna

360
00:19:00,920 --> 00:19:04,399
Speaker 1: have less inflation and manufactured goods you know, in the

361
00:19:04,480 --> 00:19:06,560
Speaker 1: next couple of years than than we have now, it

362
00:19:06,600 --> 00:19:09,840
Speaker 1: will be gradually falling on the service society, the economy.

363
00:19:10,000 --> 00:19:12,800
Speaker 1: You know, maybe we're gonna have high inflation in housing,

364
00:19:13,000 --> 00:19:16,800
Speaker 1: maybe we're gonna have faster wage growth, higher inflation and

365
00:19:17,040 --> 00:19:20,920
Speaker 1: in person discretionary services. All of that together still is

366
00:19:20,960 --> 00:19:25,240
Speaker 1: probably consistent with lower overall inflation. Um. Is this something

367
00:19:25,359 --> 00:19:27,359
Speaker 1: that you know every day people need to worry about,

368
00:19:27,480 --> 00:19:30,680
Speaker 1: like not not really, uh, And it should be happening

369
00:19:31,119 --> 00:19:34,159
Speaker 1: while we're in this bigger recovery and hopefully, you know,

370
00:19:34,240 --> 00:19:38,320
Speaker 1: the delta variant goes away, distancing, distancing comes off. Um,

371
00:19:38,440 --> 00:19:42,560
Speaker 1: And we just have a complicated normalization of economic activity,

372
00:19:42,600 --> 00:19:46,159
Speaker 1: which each of these different parts of that normalization following

373
00:19:46,200 --> 00:19:48,359
Speaker 1: its own special path. And it's it's a little bit

374
00:19:48,680 --> 00:19:50,520
Speaker 1: you know, it's a little bit difficult to explain right now,

375
00:19:50,640 --> 00:19:54,280
Speaker 1: but said it's it's complicated. Thanks so much, James Sweeney, John,

376
00:19:54,520 --> 00:19:56,240
Speaker 1: can we have a vote right now? Sweeney has gotta

377
00:19:56,240 --> 00:19:59,640
Speaker 1: be on like every third day. Yeah, I mean, I'm sorry,

378
00:20:00,000 --> 00:20:01,359
Speaker 1: I just don't know if James wants to do that.

379
00:20:02,320 --> 00:20:06,080
Speaker 1: It's not up to us. Entertainment credits waste tone, Okay,

380
00:20:06,160 --> 00:20:15,200
Speaker 1: thank you. Jane Folly is known for writing British paragraphs

381
00:20:15,240 --> 00:20:19,720
Speaker 1: are longer than American paragraphs, but she writes exceptionally terse,

382
00:20:20,080 --> 00:20:23,840
Speaker 1: brilliant notes on the ebbs and flows of foreign exchange.

383
00:20:23,880 --> 00:20:26,439
Speaker 1: She's with Robbo Bank, one of the great commercial banks

384
00:20:26,760 --> 00:20:30,600
Speaker 1: of Europe. She really has to worry about business transactions,

385
00:20:30,800 --> 00:20:34,600
Speaker 1: investment and speculation. She joins US this morning, their senior

386
00:20:34,920 --> 00:20:39,119
Speaker 1: foreign exchange strategist, Jane, I love, love, love your quantification

387
00:20:39,320 --> 00:20:44,080
Speaker 1: of speculation in the Australian dollar. What is the speculation

388
00:20:44,640 --> 00:20:50,400
Speaker 1: entering que four in US dollar, in yen, in euro. Well,

389
00:20:50,480 --> 00:20:52,320
Speaker 1: I think it's really all one way, and we've seen

390
00:20:52,400 --> 00:20:54,800
Speaker 1: this pushing back into the U S dollar, And to

391
00:20:54,880 --> 00:20:57,400
Speaker 1: be honest, I think we've got to include emerging markets.

392
00:20:57,480 --> 00:21:00,840
Speaker 1: That really into your your question there, because what we

393
00:21:00,920 --> 00:21:02,520
Speaker 1: often see in the dollar, what we always see in

394
00:21:02,520 --> 00:21:05,400
Speaker 1: the dollar in recent years is that when risk appetite

395
00:21:05,520 --> 00:21:08,080
Speaker 1: is low and people don't want to invest in emerging markets,

396
00:21:08,160 --> 00:21:10,400
Speaker 1: the dollar does well. And if we look right now

397
00:21:10,920 --> 00:21:13,679
Speaker 1: on the headwinds to emerging market as well, we've got

398
00:21:13,760 --> 00:21:17,119
Speaker 1: energy price increases, we've got the FED potentially potentially I

399
00:21:17,240 --> 00:21:20,000
Speaker 1: can interest rate in twenty two and we've got that

400
00:21:20,080 --> 00:21:22,879
Speaker 1: slowed down in China, and all of these are going

401
00:21:22,920 --> 00:21:26,280
Speaker 1: to be and happy pushing money back into the US dollar.

402
00:21:26,400 --> 00:21:29,840
Speaker 1: Can there be a big figure move in Indonesia, in Poland,

403
00:21:30,119 --> 00:21:33,760
Speaker 1: in Turkey? Well, you know, again, all of these are

404
00:21:33,800 --> 00:21:36,280
Speaker 1: going to be vulnerable in in this sort of environment.

405
00:21:36,400 --> 00:21:39,280
Speaker 1: I mean, energy prices that tend to have a bigger

406
00:21:39,400 --> 00:21:43,680
Speaker 1: impact and the huge quantity that we've seen and wholesale

407
00:21:43,720 --> 00:21:47,520
Speaker 1: gas prices for instance in Europe really will have an impact.

408
00:21:47,560 --> 00:21:52,480
Speaker 1: Now that there's different there's different uh um parameters here,

409
00:21:52,520 --> 00:21:54,879
Speaker 1: we've got to look at which ones are energy exporters

410
00:21:55,200 --> 00:21:57,280
Speaker 1: that those ones will do well in the same way

411
00:21:57,359 --> 00:22:00,320
Speaker 1: that you were describing the energy firms are the only

412
00:22:00,400 --> 00:22:02,840
Speaker 1: ones to do well in this sort of environment as well.

413
00:22:03,160 --> 00:22:05,720
Speaker 1: So the energy exporters will do well, and the Aussie

414
00:22:05,760 --> 00:22:07,399
Speaker 1: will have a little bit of relief on on that

415
00:22:07,560 --> 00:22:10,000
Speaker 1: front as well. Okay, as well some of those em

416
00:22:10,080 --> 00:22:14,080
Speaker 1: countries too. But generally speaking, energy prices are a big

417
00:22:14,280 --> 00:22:17,720
Speaker 1: drag on real incomes. You know, it is something which

418
00:22:17,800 --> 00:22:20,919
Speaker 1: is really gonna make people pour in and affect demand,

419
00:22:21,000 --> 00:22:24,359
Speaker 1: not necessarily the sort of inflation that most central banks

420
00:22:24,400 --> 00:22:27,080
Speaker 1: will respond to. Okay, So this is the interesting conundrum

421
00:22:27,160 --> 00:22:28,840
Speaker 1: we hear from a number of analysts who come on

422
00:22:28,880 --> 00:22:32,800
Speaker 1: this show. It's not necessarily something that central bankers respond to. However,

423
00:22:32,920 --> 00:22:37,040
Speaker 1: the ECB's hand might be really called as a result

424
00:22:37,080 --> 00:22:38,879
Speaker 1: of some of the inflationary pressures that we're seeing, not

425
00:22:38,920 --> 00:22:41,600
Speaker 1: only from energy but also supply chain disruptions, and the

426
00:22:41,680 --> 00:22:45,159
Speaker 1: fact that increased ability to buy will only exacerbate this.

427
00:22:45,640 --> 00:22:48,160
Speaker 1: At what point do you see this pressuring the euro

428
00:22:48,359 --> 00:22:52,040
Speaker 1: stronger and the dollar weaker, given the fact that at

429
00:22:52,119 --> 00:22:55,359
Speaker 1: some point the higher inflation prints will have an impact

430
00:22:55,600 --> 00:22:58,680
Speaker 1: on central bank policy. I don't think that we're talking

431
00:22:58,720 --> 00:23:01,440
Speaker 1: about higher rates in the CBE for really for some time.

432
00:23:01,480 --> 00:23:03,479
Speaker 1: I think this is a story really affecting the DOOR,

433
00:23:03,600 --> 00:23:07,000
Speaker 1: and a few other central banks in Norway obviously have

434
00:23:07,160 --> 00:23:09,440
Speaker 1: moved already. There's there's a couple of others in the frame,

435
00:23:09,480 --> 00:23:12,360
Speaker 1: but not not the e c B. I mean, again,

436
00:23:12,440 --> 00:23:13,719
Speaker 1: if we look at the head winds that we look

437
00:23:13,760 --> 00:23:17,000
Speaker 1: at yesterday's German unemployment data, it improved, but not at

438
00:23:17,040 --> 00:23:19,159
Speaker 1: the sort of rate that people were expected. If we

439
00:23:19,200 --> 00:23:22,639
Speaker 1: look at Germany's exports, exports that they're very tied to China,

440
00:23:22,680 --> 00:23:24,520
Speaker 1: and we know that China is slowing. We know that

441
00:23:24,840 --> 00:23:27,760
Speaker 1: we've seen a part of Chinese and industrial district have

442
00:23:27,920 --> 00:23:31,440
Speaker 1: be shut downs because of electricity shortages for instance. So

443
00:23:31,520 --> 00:23:33,760
Speaker 1: I think Germany is facing the sort of headwinds. We

444
00:23:33,840 --> 00:23:38,080
Speaker 1: do have an inelastic demand for energy, or relatively inelastic,

445
00:23:38,160 --> 00:23:40,760
Speaker 1: and and it's very difficult to shift that in the

446
00:23:40,880 --> 00:23:44,160
Speaker 1: short term. So with the higher energy prices really does

447
00:23:44,280 --> 00:23:48,040
Speaker 1: respond to the lower demand and that actually could pull

448
00:23:48,119 --> 00:23:50,639
Speaker 1: the economies into a weaker position and that could be

449
00:23:50,720 --> 00:23:53,320
Speaker 1: a concern the central banks into the new year. So Janane,

450
00:23:53,359 --> 00:23:55,520
Speaker 1: what we have to talk about just to explore is

451
00:23:55,600 --> 00:23:58,840
Speaker 1: what happens to a developed market currency when a central

452
00:23:58,880 --> 00:24:02,320
Speaker 1: bank needs to hike into economic weakness, how does that

453
00:24:02,400 --> 00:24:05,080
Speaker 1: currency respond? And it's Sterling a decent example of that

454
00:24:05,160 --> 00:24:08,760
Speaker 1: at the moment, oh, Sterling really is a decent example

455
00:24:08,840 --> 00:24:11,280
Speaker 1: of that. We've seen hawkish commentary from the central bank

456
00:24:11,640 --> 00:24:16,080
Speaker 1: not coming through into games for that currency. Now this

457
00:24:16,200 --> 00:24:18,560
Speaker 1: could be because that the UK does have a significant

458
00:24:18,640 --> 00:24:23,200
Speaker 1: current account deficit that could be increasing the vulnerability because

459
00:24:23,200 --> 00:24:26,640
Speaker 1: as Internet international investors look in, they want to see

460
00:24:26,680 --> 00:24:29,240
Speaker 1: the whole suite of fundamentals and what they've seen in

461
00:24:29,320 --> 00:24:33,760
Speaker 1: the UK now are really nasty numbers of fuel price shortages,

462
00:24:33,880 --> 00:24:38,480
Speaker 1: driver shortages, skills shortages, um and and the whole suite

463
00:24:38,520 --> 00:24:41,000
Speaker 1: of these concerns is is way in. It appears on

464
00:24:41,119 --> 00:24:43,800
Speaker 1: an investment expectations. We've seen that in the survey this

465
00:24:43,960 --> 00:24:47,600
Speaker 1: morning from the UK's Institute of Directors and that is

466
00:24:47,720 --> 00:24:50,960
Speaker 1: really bogging down Sterling right now. Jane, great to catch

467
00:24:51,080 --> 00:24:54,160
Speaker 1: up with DETAINFX. Finally waking up a little bit. Jane

468
00:24:54,200 --> 00:24:57,720
Speaker 1: Foley has been too long. Thank you, rubber Bank senior strategist.

469
00:25:02,160 --> 00:25:04,640
Speaker 1: This is a joy, and it is a particular joy.

470
00:25:04,760 --> 00:25:11,240
Speaker 1: As Bloomberg today recalibrated our iPhone sales guestimates forward and

471
00:25:11,359 --> 00:25:15,480
Speaker 1: basically anorag Raga and John Butler said, the streets got

472
00:25:15,560 --> 00:25:19,639
Speaker 1: it wrong. iPhone sales are booming. They're booming because of

473
00:25:19,720 --> 00:25:25,119
Speaker 1: the confluence of engineering, an interior design, industrial design. I

474
00:25:25,160 --> 00:25:29,119
Speaker 1: should say James Dyson joins us, and some would argue

475
00:25:29,680 --> 00:25:33,399
Speaker 1: it's Steve Jobs. Learned it all from Dyson. He's a

476
00:25:33,720 --> 00:25:37,440
Speaker 1: Dyson founder, the chief engineer. Full disclosure. I have a

477
00:25:37,560 --> 00:25:41,600
Speaker 1: vacuum James Dyson invention of life and we're thrilled at

478
00:25:41,640 --> 00:25:44,920
Speaker 1: Sir James could join us this morning. Sir James, when

479
00:25:44,960 --> 00:25:49,399
Speaker 1: you see the success of what Jobs did with his aesthetic.

480
00:25:49,960 --> 00:25:53,240
Speaker 1: What do you think of the iPhone is so much

481
00:25:53,320 --> 00:25:58,440
Speaker 1: an equivalent of your design and engineering ability? Well, I

482
00:25:58,520 --> 00:26:00,840
Speaker 1: don't think I got ready compare the two. I mean

483
00:26:00,880 --> 00:26:04,720
Speaker 1: one's one's a phone, almost a piece of jewelry, and

484
00:26:04,840 --> 00:26:09,359
Speaker 1: ours is as a machine that does things, mechanical machine.

485
00:26:09,520 --> 00:26:13,680
Speaker 1: I mean increasingly we use software, artificial intelligence and so on,

486
00:26:13,880 --> 00:26:16,840
Speaker 1: but but it's a you know, ours is a tool,

487
00:26:16,880 --> 00:26:21,159
Speaker 1: a machine that you use, rather than a piece of jewelry.

488
00:26:21,720 --> 00:26:24,920
Speaker 1: The original machine and I remember my father talking about this.

489
00:26:25,040 --> 00:26:27,600
Speaker 1: It was a wheelbarrow which broke every rule. We had

490
00:26:27,600 --> 00:26:30,960
Speaker 1: an access in an X y space and Dyson said, no,

491
00:26:31,200 --> 00:26:33,840
Speaker 1: think x y Z space is on the edge of

492
00:26:33,880 --> 00:26:38,359
Speaker 1: spherical geometry. When you figured out the bar barrow, what

493
00:26:38,640 --> 00:26:44,360
Speaker 1: was the response, how much grief did you get? Um? Well,

494
00:26:45,119 --> 00:26:47,200
Speaker 1: if the idea really was that it didn't sink into

495
00:26:47,280 --> 00:26:49,800
Speaker 1: soft ground, because wheel bears tend to be used on

496
00:26:49,920 --> 00:26:53,600
Speaker 1: building sites and and at home in the backyard on

497
00:26:53,840 --> 00:26:56,639
Speaker 1: soft ground, and it's stupid to have a narrow wheel,

498
00:26:56,720 --> 00:26:58,680
Speaker 1: which is what most of them have. So I did

499
00:26:58,800 --> 00:27:03,440
Speaker 1: this huge ball wheel and then the the bin on

500
00:27:03,640 --> 00:27:08,320
Speaker 1: wheelbarers is rather open bin incapable of holding cement safely

501
00:27:08,400 --> 00:27:10,480
Speaker 1: inside it. Though I did a sort of dumper truck

502
00:27:10,560 --> 00:27:14,159
Speaker 1: shape bin. I just rethought the wheel bearer from the

503
00:27:14,240 --> 00:27:17,240
Speaker 1: ground up, as it were. But it's really quite a

504
00:27:17,280 --> 00:27:20,680
Speaker 1: simple product, and we got fifty percent market share with it,

505
00:27:21,480 --> 00:27:24,200
Speaker 1: so I did quite well. So, James, you wrote this

506
00:27:24,280 --> 00:27:27,280
Speaker 1: book at a pivotal moment in the entire labor economy,

507
00:27:27,320 --> 00:27:30,760
Speaker 1: and frankly on the precipice of the technological revolution that's

508
00:27:30,760 --> 00:27:33,600
Speaker 1: going to accelerate to a new level. What would you

509
00:27:34,000 --> 00:27:37,879
Speaker 1: say going forward is the biggest challenge for the next innovation,

510
00:27:38,160 --> 00:27:42,440
Speaker 1: the next Dyson, the next Dyson vacuum cleaner, or whether

511
00:27:42,520 --> 00:27:47,040
Speaker 1: it's the iPhone. How do you foster that type of innovation? Well,

512
00:27:47,080 --> 00:27:48,800
Speaker 1: that's a very good point. I mean, I think we

513
00:27:48,840 --> 00:27:52,440
Speaker 1: should be encouraging more and more young people to to

514
00:27:52,560 --> 00:27:56,240
Speaker 1: become engineers and scientists. We're all talking about all the

515
00:27:56,320 --> 00:27:58,880
Speaker 1: problems that exists at the moment and what the obvious ones,

516
00:27:59,720 --> 00:28:02,760
Speaker 1: and it's engineers and scientists that can solve these problems.

517
00:28:02,800 --> 00:28:07,639
Speaker 1: And the young particularly are passionate about these issues, you know,

518
00:28:07,840 --> 00:28:12,080
Speaker 1: using less electricity, saving the world, using less fuel, uh

519
00:28:12,680 --> 00:28:15,200
Speaker 1: and so on and finding a different form of plastic,

520
00:28:15,960 --> 00:28:19,600
Speaker 1: something to replace plastic, and engineers and science scientists can

521
00:28:19,640 --> 00:28:23,200
Speaker 1: solve this. But I think that's historically very few of

522
00:28:23,320 --> 00:28:27,040
Speaker 1: us have wanted to become engineers and scientists, partly because

523
00:28:27,720 --> 00:28:32,080
Speaker 1: it's difficult and it's hard, but also because somehow that

524
00:28:32,600 --> 00:28:35,520
Speaker 1: it's never seen as glamorous, it's never seen as as

525
00:28:35,760 --> 00:28:39,200
Speaker 1: as something that interests ordinary people. But it only will

526
00:28:39,280 --> 00:28:42,080
Speaker 1: is now, you know. Greta Kumberg has made it an

527
00:28:42,120 --> 00:28:45,080
Speaker 1: interesting subject. So, James, where in the world do you

528
00:28:45,240 --> 00:28:49,280
Speaker 1: think that engineers are being most supported from an early age?

529
00:28:49,320 --> 00:28:51,960
Speaker 1: And I speak of this as we do talk increasingly

530
00:28:52,440 --> 00:28:56,200
Speaker 1: of the tech wars between the U S and China. Well,

531
00:28:56,320 --> 00:28:59,880
Speaker 1: it's I mean, obviously a huge number of last number

532
00:28:59,880 --> 00:29:02,880
Speaker 1: of engineers are being produced in China, but also in India.

533
00:29:03,080 --> 00:29:06,880
Speaker 1: I mean Una, just one city in in India, for example,

534
00:29:06,960 --> 00:29:10,520
Speaker 1: produces forty engineers a year, which is actually more than

535
00:29:10,600 --> 00:29:12,800
Speaker 1: we produced in England. The whole of the sort of

536
00:29:12,840 --> 00:29:15,480
Speaker 1: the whole of Great Britain. So um, you know, I

537
00:29:15,760 --> 00:29:18,840
Speaker 1: think on the whole, so called developed countries are much

538
00:29:18,880 --> 00:29:23,120
Speaker 1: worse at producing engineers and scientists than developing countries. For example,

539
00:29:23,160 --> 00:29:27,800
Speaker 1: the Philippines producing more engineers than written um. And then

540
00:29:27,960 --> 00:29:30,280
Speaker 1: you know, in the United States there's nineteen lawyers for

541
00:29:30,320 --> 00:29:34,400
Speaker 1: every one engineer. That we've got to do something like

542
00:29:34,560 --> 00:29:36,280
Speaker 1: it said, what what what we've been doing. We've been

543
00:29:36,320 --> 00:29:39,120
Speaker 1: working in schools, actually been working in some schools in Chicago,

544
00:29:39,280 --> 00:29:41,160
Speaker 1: but a lot of schools in England over a number

545
00:29:41,200 --> 00:29:44,200
Speaker 1: of years. And we try to improve design and technology

546
00:29:44,280 --> 00:29:48,040
Speaker 1: teaching in schools, so bringing real products into schools and

547
00:29:48,200 --> 00:29:52,360
Speaker 1: encouraging children to solve problems. To see an engineering designers

548
00:29:52,440 --> 00:29:57,120
Speaker 1: problem solving. So James, please please give us an update

549
00:29:57,200 --> 00:30:00,240
Speaker 1: on Brexit. The last time I talked you, you're upon

550
00:30:00,320 --> 00:30:03,600
Speaker 1: a soap box telling us let's go England, let's separate.

551
00:30:04,200 --> 00:30:10,080
Speaker 1: Give us the Dyson update. And the success of Brexit, well,

552
00:30:10,160 --> 00:30:12,880
Speaker 1: you've got to give it a chance, you know, because

553
00:30:13,000 --> 00:30:15,440
Speaker 1: we can't change laws and get rid of red tape,

554
00:30:15,680 --> 00:30:19,680
Speaker 1: European standards and all things overnight. That will happen over time.

555
00:30:20,280 --> 00:30:22,840
Speaker 1: But a very good example of the success of Brexit

556
00:30:23,480 --> 00:30:26,480
Speaker 1: is the Britain's development of the astra Zeneca vaccine was

557
00:30:26,600 --> 00:30:31,200
Speaker 1: developed at Oxford, done totally independently, whereas the European program

558
00:30:31,240 --> 00:30:34,000
Speaker 1: hasn't produced a vaccine yet. So I think that's a

559
00:30:34,080 --> 00:30:36,800
Speaker 1: very good example of Britain going on its own, living

560
00:30:36,880 --> 00:30:40,640
Speaker 1: by its wits and doing things independently. We've signed a

561
00:30:40,720 --> 00:30:42,960
Speaker 1: lot of trade deals, not with you yet unfortunately, but

562
00:30:43,080 --> 00:30:45,920
Speaker 1: we signed a lot of trade deals around the world, um,

563
00:30:46,160 --> 00:30:48,800
Speaker 1: and I see it as a psychological change more than

564
00:30:48,880 --> 00:30:52,640
Speaker 1: anything else. We've gone trading. We got trading with Europe

565
00:30:52,720 --> 00:30:55,480
Speaker 1: as we have done for hundreds of years, and just

566
00:30:55,560 --> 00:30:58,080
Speaker 1: as we did before we joined the EU and as

567
00:30:58,160 --> 00:31:00,520
Speaker 1: we are now. So that the trade it doesn't really

568
00:31:00,560 --> 00:31:03,040
Speaker 1: the issue. I think it's more psychological issue and an

569
00:31:03,120 --> 00:31:07,480
Speaker 1: issue of solign sovereignty. The issue of sovereignty. Sovereignty is

570
00:31:07,520 --> 00:31:10,600
Speaker 1: the greatest issue, I think, and that's what determined it

571
00:31:10,720 --> 00:31:14,320
Speaker 1: in the end, Sir James, We're gonna have to leave states.

572
00:31:14,440 --> 00:31:18,920
Speaker 1: Wouldn't want to be a subservient to Canadian law for example,

573
00:31:18,960 --> 00:31:22,000
Speaker 1: for example. Very good, Sir James. Thank you so much.

574
00:31:22,040 --> 00:31:26,760
Speaker 1: Sir James Dyson's folks new book, James Dyson Invention a Life.

575
00:31:27,120 --> 00:31:30,880
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

576
00:31:31,000 --> 00:31:34,320
Speaker 1: us live weekdays from seven to ten am Eastern on

577
00:31:34,440 --> 00:31:38,640
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

578
00:31:38,800 --> 00:31:43,600
Speaker 1: to nine am for insight from the best in economics, finance, investment,

579
00:31:43,800 --> 00:31:48,760
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

580
00:31:48,880 --> 00:31:52,720
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on

581
00:31:52,840 --> 00:31:56,920
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg