Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg Terminal. Joining sell Mike
Speaker 1: Wilson of Morgan Stanley, their chief US equity strate is Mike.
Speaker 1: I want to go sixty feet on you. We have
Speaker 1: had a stretch of disinflation from Vocer to Mike Wilson
Speaker 1: right now. Do you sense that this is a nuance
Speaker 1: within a bullmarket wrapped around fixed income commodities, the rest
Speaker 1: of it, the dollar, et cetera. Or are we at
Speaker 1: a point of a major change in the vectors to
Speaker 1: two thousand? Well, look, I mean we get we've had
Speaker 1: that view for a while. We felt like last year's
Speaker 1: pandemic was the catalyst to kind of move us out
Speaker 1: of this disinflationary, deflationary world we've been in for twenty years.
Speaker 1: Quite frankly, a lot of other things, uh, you know,
Speaker 1: we're happening before the pandemic, deglobalization, Uh, some of the
Speaker 1: populous movement, which was talking about you know, inequality of
Speaker 1: wealth and income, and that that train had already left
Speaker 1: the station. So the pandemic, which by the way, pandemics
Speaker 1: are typically inflationary. Um so that was a perfect foil
Speaker 1: to get the transition from monetary policy dominance to fiscal
Speaker 1: policy dominance. And it's begun. And normally it happens with
Speaker 1: with what I call a kickoff move tom. When you
Speaker 1: see big trends change, you get a big kickoff move
Speaker 1: and that's what we've seen in all the inflation indicators.
Speaker 1: My best guess is it will settle down, but then
Speaker 1: the trend is changing, and so it's gonna be a
Speaker 1: long journey ahead. You know, it took us thirty five
Speaker 1: years to get here, It's gonna take us thirty five
Speaker 1: years probably get to the peak and rates. It's gonna
Speaker 1: be a slow moving train. And you know, essentially what
Speaker 1: before I'm saying is by the dips on inflation, Mike,
Speaker 1: the equity market, you're looking for a ten percent move
Speaker 1: lower on the SP five hundred. We've had five percentage
Speaker 1: points off it. Are you seeing with increasing confidence? It
Speaker 1: could be worse than that. It could drift towards that
Speaker 1: other level you were looking for. Move if you are.
Speaker 1: Why Yeah, Johnny, last time we chatted about this, this
Speaker 1: is kind of after we made that lean h It
Speaker 1: was prior to the situation in in China with the
Speaker 1: property development company, and you know, like I think what
Speaker 1: happened here is uh, you know, we we've got more
Speaker 1: data on the idea that not only are we getting
Speaker 1: a you know, a tightening of financial conditions from the
Speaker 1: FED lower multiples, were also getting a greater slow down
Speaker 1: than perhaps is expected. Now we're seeing the earnings numbers.
Speaker 1: You guys have been talking about the cost pressures to
Speaker 1: supply issues in constraints, but there's also this payback in
Speaker 1: demand thesis that we've had for quite a while. Our
Speaker 1: cost thesis is playing out now. People are aware of it,
Speaker 1: but I don't think they really appreciate how much payback
Speaker 1: and demand there's going to be in these areas that
Speaker 1: we over consumed. Okay, so the bottom line for us
Speaker 1: is that risk has increased um and you know we're
Speaker 1: center base case yet, but but clearly moving that way. Mike,
Speaker 1: touch on this, you've touched on it, briefly built on it.
Speaker 1: For us, what we've seen over the last several months,
Speaker 1: has been so well flagged, it talked about so much,
Speaker 1: so well known, and yet clearly from your perspective, poorly priced. Mike,
Speaker 1: Why is that? Well, it's that poorly priced at the
Speaker 1: stock and sector level, right. I mean, we've talked about
Speaker 1: this too, John. I mean, it's roll. It's been basically
Speaker 1: a rolling correction since March, you know, that's when we
Speaker 1: made the mid cycle transition call. The market has moved
Speaker 1: aggressively towards high quality, large camp high quality in particular.
Speaker 1: And what the market is saying is that we're you know,
Speaker 1: we're getting taking shelter. You know, the market, Uh, it's
Speaker 1: got to own something, right, And what happens is people
Speaker 1: moved to you know, the highest parts of the land
Speaker 1: away from the flood, and that's what the high quality
Speaker 1: stocks are. Typically, when you get to the point that
Speaker 1: the moment of truth, which is now, which is where
Speaker 1: the yearning start to get cut and where the FED
Speaker 1: actually you know, moved to Titan, then even the high
Speaker 1: shelter areas are no longer protected. And that's how the
Speaker 1: mid cycle transition. And so I mean the script is
Speaker 1: really playing how to a t uh, you know, it's
Speaker 1: hard to trade is black cross currents. But generally speaking,
Speaker 1: we're right on scheduled and should finish up in the
Speaker 1: fourth courter. As you said, the rolling correction since March
Speaker 1: has left a lot of big stocks, like big tech
Speaker 1: stocks down substantially. If we get a full correction here,
Speaker 1: what will be the drivers of that given how significant
Speaker 1: the correction has already been in some of the major
Speaker 1: components of the indexes. Well, Lisa, but I mean, quite frankly,
Speaker 1: I mean that you know, those stocks benefited tremendously from
Speaker 1: March until recently, so they had a huge move up
Speaker 1: and that's what's held the averages up. Um. So now
Speaker 1: they're going to have their come up and and and
Speaker 1: they may not even go back to where they were
Speaker 1: in March, and that would be a big drop. But
Speaker 1: they're gonna have to go down if the major indussees
Speaker 1: are gonna have this ten to correction, and that should
Speaker 1: happen anyways, because you know, quite frankly, those stocks are
Speaker 1: most vulnerable to a tightening of financial conditions, and that
Speaker 1: all of them, but I think several of those companies
Speaker 1: are also vulnerable to this payback and demand from the
Speaker 1: overconsumption during the work from home period. So what's the
Speaker 1: driver then? Is it going to be just a direct
Speaker 1: yield correlation story that basically as yields go up, the
Speaker 1: big tech stocks sell off, or is there going to
Speaker 1: be an earnings component as well? Yeah, I think it's both.
Speaker 1: I mean, that's the fire and ice you know scenario. Right.
Speaker 1: The fire is basically the tightening financial conditions, multiples come down,
Speaker 1: and then to get a little bit of ice on
Speaker 1: the back end of that, the deceleration as you always
Speaker 1: get at this stage of the academic cycle is normal. Now,
Speaker 1: normally what happens is, you know, earns continue to go up.
Speaker 1: But because the amplitude of this, you know, recession recovery,
Speaker 1: we're so dramatic, you have to assume that the mid
Speaker 1: cycle transition deceleration will be more or larger than average. Okay,
Speaker 1: I mean to think otherwise would just be intellectually dishonest. Micaer,
Speaker 1: We finally at a point where we've been so wrong
Speaker 1: about single digit actual assumption ten year sp X fifteen
Speaker 1: point seven percent per year. Can you tell your team
Speaker 1: at Morgan Stanley the single digit equity return world is
Speaker 1: finally upon us? Yeah, I mean, look, I mean it's
Speaker 1: it's interesting, Tom, and I'm thinking you understand this, but
Speaker 1: you know it's it's it's easier to predict stock returns
Speaker 1: over a seven year period than it is over a
Speaker 1: one year period. Why is that because over seven years,
Speaker 1: the value, you know, your starting valuation comes to fuition. Okay,
Speaker 1: you can't you can't avoid that. You know, your returns,
Speaker 1: your your actual returns over seven year period are contingent
Speaker 1: upon the price you pay. And we all know assets
Speaker 1: are expensive right now, whether you're talking about bonds which
Speaker 1: are being financially repressed, or stocks or any asset that's
Speaker 1: tied to a ten your treasury yield which is artificially low.
Speaker 1: So yeah, I mean the starting point is poor on
Speaker 1: a seven year basis, and so it's it's high conviction.
Speaker 1: And this is not a call, by the way, high conviction.
Speaker 1: It's a single digit return out Look, Okay, not the
Speaker 1: end of the world, but I mean that's what financial
Speaker 1: oppression is. I mean, that's that's the world we're in.
Speaker 1: Lower returns. It's not the end of the world, but
Speaker 1: you know that's a fact. Mike, trying to catch up
Speaker 1: has always gotta work through this together. Through a key
Speaker 1: forum workout went to buy this market. My Wilson, that
Speaker 1: of Morgan Stanley, chief US equity strategist, and c I oh,
Speaker 1: speaking of Bloom, that means Washington. Andy Blocker joins us
Speaker 1: right now with Invesco, Head of US Government Affairs. Andy,
Speaker 1: I love what you say. We've seen this movie before.
Speaker 1: I'm not sure. I doubt I believe it is a
Speaker 1: negotiation or compromise that we see this movie before. So
Speaker 1: generally speaking, yes, but in specifics it's uncertain. Look, first
Speaker 1: of all, let's just say, look, we we kept the
Speaker 1: government open. Okay, hooray, We're gonna be the open sil
Speaker 1: December third. But on this five part of the infrastructure bill,
Speaker 1: I think there's a real tension between the moderates and
Speaker 1: the liberals and the Democratic Party, and the question is
Speaker 1: are they gonna hang together or they're gonna hang separately? Well,
Speaker 1: I mean, I mean give us a historic precedent here.
Speaker 1: I mean, what do they do? I've never I don't
Speaker 1: believe there's any negotiation going on. They're just getting the
Speaker 1: deadlines and away we go. Do you perceive true negotiation
Speaker 1: in a fractious Democratic Party? Yes? I do. I think Look,
Speaker 1: this is part of the sausage making process of Washington.
Speaker 1: That part hasn't changed, and their political interests at the
Speaker 1: end of the day are aligned. They need to help
Speaker 1: President Biden here. He needs a win. Um, he's been
Speaker 1: taking on water since the summer because of the delta
Speaker 1: variant surge and also because of difficulty in Afghanistan without
Speaker 1: him raising its political standings, showing that he can actually
Speaker 1: get something done for the American people do it in
Speaker 1: a bipartisan way. Ultimately, he's really going to have a
Speaker 1: tough time and still Democrats with him. Andy, We're hearing
Speaker 1: reports of Nancy Pelosi on the halls of Washington, d C.
Speaker 1: In the halls of Congress on her phone NonStop morning
Speaker 1: and night. There is a new feeling of concern among
Speaker 1: Democratic leaders right now of wrangling their party together. When
Speaker 1: you talk to people, is this a new level of
Speaker 1: concern that they cannot get anything done? So it is heightened.
Speaker 1: I will say that, Um, it's to two things are different.
Speaker 1: Number One, Normally what happens is what it's the Republican
Speaker 1: Party and Democratic Party. The more conservatives and the Republican
Speaker 1: Party or the more liberals in the Democratic Party will
Speaker 1: roll the moderates and say, look, we need you to
Speaker 1: vote for this, just take the hit. What different now,
Speaker 1: democratic side is that the monitor actually standing up and saying, look,
Speaker 1: I don't want to take a difficult vote in the
Speaker 1: House that I know the Senate is not going to
Speaker 1: vote for. And so that's creating this tension where normally
Speaker 1: they just take the vote in the House, sucking up
Speaker 1: liberal get what they want, but then the Senate comes
Speaker 1: back and ve it back. What's going on now monitors
Speaker 1: saying look, I don't want to be um like we've
Speaker 1: seen in pass where it was with the BTU tax
Speaker 1: with Marjorie Margos with Sinskey walking down taking that tough
Speaker 1: vote on the BTU text and they knew the Senate
Speaker 1: wasn't gonna vote on and she lost her race. We've
Speaker 1: seen that happened many many times. And so that's gonna
Speaker 1: be the cruxes modern tolding the line thing, I don't
Speaker 1: want to take this toff vote in the House versus
Speaker 1: liberals who are being very very bold here and saying look,
Speaker 1: I'm almost willing to take down this agenda, this entire agenda,
Speaker 1: unless I get what I want. Meanwhile, Andy, a lot
Speaker 1: of people are looking at the softness and markets, and
Speaker 1: they're saying part of it is driven by but just
Speaker 1: peak recovery and the idea of slowing growth. The other
Speaker 1: is driven by policy uncertainty and this fear that we
Speaker 1: potentially could head to some sort of default, some sort
Speaker 1: of disruption in the lack of fiscal spending that was
Speaker 1: largely expected given the year. At the intersection of markets
Speaker 1: and of government affairs, what's the biggest concern you here
Speaker 1: internally in terms of policy uncertainty. Is it them getting
Speaker 1: something done that is too big, is it not getting
Speaker 1: something done, or is it a default? So up ago,
Speaker 1: I would have put the fault higher up because Republicans
Speaker 1: it made it clear that in the Senate they weren't
Speaker 1: going to due bipartisan deal, which they've done recently. That
Speaker 1: put all the onus on Democrats in But now that
Speaker 1: the Democrats, I think no. Now I've seen some comments
Speaker 1: from some members, especially in the House, saying, look, we're
Speaker 1: gonna go through this Dog and Tony show. We're gonna
Speaker 1: try to force the republic to take a few bad votes.
Speaker 1: But even the day they know they're gonna have to
Speaker 1: do their own little reconciliation package paths the debt selling
Speaker 1: raised on their own, so that I think it's gonna
Speaker 1: be off the table by mid October. I think we're
Speaker 1: on a path to get that done. The bigger issue
Speaker 1: for us is how big is this um feature within
Speaker 1: the Democratic Party. Is it so big that that liberal
Speaker 1: Democrats are going to crush the ability to get this
Speaker 1: bipartisan infrastructure bill just so they get the number on
Speaker 1: the reconciliation or are they going to ultimately you're being
Speaker 1: way too kind, are there? You know you're down there
Speaker 1: in the Beltway drinking the kool aid? Are the liberals
Speaker 1: of the democ Credit Party handing the Republicans majorities in
Speaker 1: the Senate in the House if they thank the biparsed
Speaker 1: infrastructure bill? Yes, that's the answer. Okay, So moving forward,
Speaker 1: what are you watching in terms of deadlines with respect
Speaker 1: to getting something done? Because right now it seems like
Speaker 1: the progressive wing is pretty entrenched and uh and Nancy
Speaker 1: Plosi is not going to get any Republicans on her side. Yeah,
Speaker 1: so I don't think Republicans are going to lend a
Speaker 1: helping hand here. I think Democrats are going to have
Speaker 1: to show, whether it's today or week from now or
Speaker 1: whenever they have the votes to get the BIPARS infrastructure
Speaker 1: bill on their own. Once they do that, once they
Speaker 1: show that vote, usually a pose of the Republicans run
Speaker 1: to vote for this, but they're not going to be
Speaker 1: the deciding vote to put the Democrats over the top.
Speaker 1: So the question is can Nancy Pelosi corral the Democrats,
Speaker 1: both Warters and Liberals to say, Hey, we're gonna vote
Speaker 1: on this thing today. The couple this, trust this, We're
Speaker 1: gonna get you your reconciliation package with all the goodies
Speaker 1: that you want. Um, And that's the key tout for
Speaker 1: the day. Andy, thank you. I'm gonna leave it there.
Speaker 1: We appreciate your insights. Come back soon and he block
Speaker 1: invest ahead of US government affairs. The gloom this morning,
Speaker 1: the journey of gloom that we've been on him to
Speaker 1: queue for has been substantial. James Sweeney parachutes in less
Speaker 1: Gloomy with Credit Sweez and their chief economist, James, I'm
Speaker 1: gonna go right to where you went with your global note,
Speaker 1: which is j. Pulaski. A T. T P W is
Speaker 1: on the same page, is James Sweeney. The gloom about
Speaker 1: Asia and China is overwrought discussed well. Asia has contracted
Speaker 1: an industrial production term since early this year, but as
Speaker 1: we got into early summer, it was contracting so significantly
Speaker 1: that it's likely things are gonna get a little bit
Speaker 1: better in the near term. A lot of that weakness
Speaker 1: was due to idiosyncratic factors, short term shutdowns of activity
Speaker 1: because of the virus supply side situations. Now we might
Speaker 1: be short on chips relative to where we want to
Speaker 1: be globally for the next eighteen months, but we're gonna
Speaker 1: have periods where there's no chips and production can't happen,
Speaker 1: and periods where some is gonna come in and production
Speaker 1: is going to be really fast. And I think late
Speaker 1: spring just happened to be a period where production really
Speaker 1: shut down and fell in Asia and reduced for some
Speaker 1: short term re acceleration. I think we've had a global
Speaker 1: trough in the growth rate of industrial production this summer,
Speaker 1: and it will be rebounding in the second half of
Speaker 1: the year. Even though you know some of the some
Speaker 1: of the troubles and worries about China and housing are
Speaker 1: significant over a longer period, you have shown me over
Speaker 1: well in excess of ten years, a great optimism you
Speaker 1: are a glass half full guy. Push against the some gloom, John,
Speaker 1: Lisa and I have heard this morning. Well, you know,
Speaker 1: right now, economic data are all over the place because
Speaker 1: the pandemic has done strange things to the data. One
Speaker 1: of the strange things is that these p M I
Speaker 1: s like the I S M today have been much
Speaker 1: less correlated with industrial activity than they have. So one
Speaker 1: thing that drives me clar hazy is when I read
Speaker 1: in a newspaper that manufacturing just spell in Country X
Speaker 1: because the survey fell by two points. Well, we have
Speaker 1: real data on manufacturing in that country, and and you know,
Speaker 1: basically the real data and surveys have not been correlated.
Speaker 1: Actual production has been pretty weak, but in my view,
Speaker 1: actually it's going to be re accelerating from here. Demand
Speaker 1: is strong, inventories are low, businesses are ready to invest globally. Yes,
Speaker 1: we're worried about further COVID, Yes we're worried about China housing,
Speaker 1: but we should we should do better than we did
Speaker 1: in the Lake. You two, James, we are confusing the
Speaker 1: pace of the journey with the direction of travel. And
Speaker 1: tell him that's what I want to hit some because
Speaker 1: t K I keep hearing the same word again and
Speaker 1: again and again this morning. Thankshilation, Yes, yeah, this is yeah.
Speaker 1: I mean John, it's so good to have Jim James
Speaker 1: Sweeney with us. James wigh in on that that word
Speaker 1: is getting thrown around at the moment so casually. I
Speaker 1: mean the pace of the journey. The markets move in
Speaker 1: the short run with the pace of the journey almost always,
Speaker 1: and the narratives and the fears move with the pace. Recently,
Speaker 1: the pace has been weak, so everyone's panicking now and
Speaker 1: telling doom and gloom stories. In terms of the destination
Speaker 1: where we're going, You're absolutely right, We're going up. Inventories
Speaker 1: are low. Demand is good, Social distancing is being reduced globally,
Speaker 1: and as a service sector comes back, employment will grow,
Speaker 1: as as industrial production comes back, and as these supply
Speaker 1: side issues gradually fixed themselves. Now we're also going to have,
Speaker 1: you know, downward pressure on some of these goods price
Speaker 1: inflation shocks that we've had, and almost all of these
Speaker 1: developments are different from ordinary kind of just after the
Speaker 1: recession type dynamics. The pandemic is weird. It's not a recession,
Speaker 1: it's an asterix. It's a different kind of event, and
Speaker 1: we have to be careful in jumping to strong conclusions
Speaker 1: about strange behavior in p M I S or inflation
Speaker 1: or any of these indicators and stead inflation. Don't get
Speaker 1: me started. It's a silly hypothesis. Well I want to
Speaker 1: start that, James, because I think it's important. It's a word,
Speaker 1: it's being used. People are throwing it around. And let's
Speaker 1: be clear here, I'm not talking about just anyone. I'm
Speaker 1: talking about economists, PhD, economists on Wall Street throwing that
Speaker 1: word around, confusing the pace of the journey with the
Speaker 1: direction to travel. How powerful is a word, even if
Speaker 1: it's being used in the wrong way. Well, I mean,
Speaker 1: if you get if you get some data surprises momentarily
Speaker 1: in the same direction as you're worried about significant downside risks,
Speaker 1: you could have big market moves, and markets can divert
Speaker 1: diverge from the reality UM meaningfully. But the bottom line
Speaker 1: is that GDP is actually growing decently in the US
Speaker 1: and globally right now, is expected to continue to do
Speaker 1: that for the foreseeable future. UM. And so there's a
Speaker 1: lot of growth. I mean, we're we're not at a
Speaker 1: level of activity that we're happy with yet. UM. An
Speaker 1: industrial act. It's actually you're sort of there. In good consumption,
Speaker 1: you're actually beyond there and probably coming down a little
Speaker 1: bit because they sent these huge checks out a few
Speaker 1: months ago. In services consumption, you're not there yet, and
Speaker 1: you're coming up because we have to end this pandemic
Speaker 1: and get some distancing. But when you add all that
Speaker 1: messy stuff up up, you have good growth. You have
Speaker 1: good growth ahead, and you're gonna return to a proper
Speaker 1: level of employment and a proper level of economic activity.
Speaker 1: I just don't see the contraction in that. But James
Speaker 1: is this really does go back to the point of
Speaker 1: trying to compare, for example, ever Grand to two thousand
Speaker 1: and eight or two thousands and John was talking about
Speaker 1: why does it have to be such a catastrophic comparison
Speaker 1: rather than just something that could be negative but not
Speaker 1: necessarily potentially catastrophic. Are we talking about disinflation that could
Speaker 1: be really problematic for specific sectors, even if it's not
Speaker 1: exactly stagflation. I mean, I think there's a margin story.
Speaker 1: I think for some sectors. I think these goods price
Speaker 1: overshoots are going to be coming down, so are gonna
Speaker 1: have less inflation and manufactured goods you know, in the
Speaker 1: next couple of years than than we have now, it
Speaker 1: will be gradually falling on the service society, the economy.
Speaker 1: You know, maybe we're gonna have high inflation in housing,
Speaker 1: maybe we're gonna have faster wage growth, higher inflation and
Speaker 1: in person discretionary services. All of that together still is
Speaker 1: probably consistent with lower overall inflation. Um. Is this something
Speaker 1: that you know every day people need to worry about,
Speaker 1: like not not really, uh, And it should be happening
Speaker 1: while we're in this bigger recovery and hopefully, you know,
Speaker 1: the delta variant goes away, distancing, distancing comes off. Um,
Speaker 1: And we just have a complicated normalization of economic activity,
Speaker 1: which each of these different parts of that normalization following
Speaker 1: its own special path. And it's it's a little bit
Speaker 1: you know, it's a little bit difficult to explain right now,
Speaker 1: but said it's it's complicated. Thanks so much, James Sweeney, John,
Speaker 1: can we have a vote right now? Sweeney has gotta
Speaker 1: be on like every third day. Yeah, I mean, I'm sorry,
Speaker 1: I just don't know if James wants to do that.
Speaker 1: It's not up to us. Entertainment credits waste tone, Okay,
Speaker 1: thank you. Jane Folly is known for writing British paragraphs
Speaker 1: are longer than American paragraphs, but she writes exceptionally terse,
Speaker 1: brilliant notes on the ebbs and flows of foreign exchange.
Speaker 1: She's with Robbo Bank, one of the great commercial banks
Speaker 1: of Europe. She really has to worry about business transactions,
Speaker 1: investment and speculation. She joins US this morning, their senior
Speaker 1: foreign exchange strategist, Jane, I love, love, love your quantification
Speaker 1: of speculation in the Australian dollar. What is the speculation
Speaker 1: entering que four in US dollar, in yen, in euro. Well,
Speaker 1: I think it's really all one way, and we've seen
Speaker 1: this pushing back into the U S dollar, And to
Speaker 1: be honest, I think we've got to include emerging markets.
Speaker 1: That really into your your question there, because what we
Speaker 1: often see in the dollar, what we always see in
Speaker 1: the dollar in recent years is that when risk appetite
Speaker 1: is low and people don't want to invest in emerging markets,
Speaker 1: the dollar does well. And if we look right now
Speaker 1: on the headwinds to emerging market as well, we've got
Speaker 1: energy price increases, we've got the FED potentially potentially I
Speaker 1: can interest rate in twenty two and we've got that
Speaker 1: slowed down in China, and all of these are going
Speaker 1: to be and happy pushing money back into the US dollar.
Speaker 1: Can there be a big figure move in Indonesia, in Poland,
Speaker 1: in Turkey? Well, you know, again, all of these are
Speaker 1: going to be vulnerable in in this sort of environment.
Speaker 1: I mean, energy prices that tend to have a bigger
Speaker 1: impact and the huge quantity that we've seen and wholesale
Speaker 1: gas prices for instance in Europe really will have an impact.
Speaker 1: Now that there's different there's different uh um parameters here,
Speaker 1: we've got to look at which ones are energy exporters
Speaker 1: that those ones will do well in the same way
Speaker 1: that you were describing the energy firms are the only
Speaker 1: ones to do well in this sort of environment as well.
Speaker 1: So the energy exporters will do well, and the Aussie
Speaker 1: will have a little bit of relief on on that
Speaker 1: front as well. Okay, as well some of those em
Speaker 1: countries too. But generally speaking, energy prices are a big
Speaker 1: drag on real incomes. You know, it is something which
Speaker 1: is really gonna make people pour in and affect demand,
Speaker 1: not necessarily the sort of inflation that most central banks
Speaker 1: will respond to. Okay, So this is the interesting conundrum
Speaker 1: we hear from a number of analysts who come on
Speaker 1: this show. It's not necessarily something that central bankers respond to. However,
Speaker 1: the ECB's hand might be really called as a result
Speaker 1: of some of the inflationary pressures that we're seeing, not
Speaker 1: only from energy but also supply chain disruptions, and the
Speaker 1: fact that increased ability to buy will only exacerbate this.
Speaker 1: At what point do you see this pressuring the euro
Speaker 1: stronger and the dollar weaker, given the fact that at
Speaker 1: some point the higher inflation prints will have an impact
Speaker 1: on central bank policy. I don't think that we're talking
Speaker 1: about higher rates in the CBE for really for some time.
Speaker 1: I think this is a story really affecting the DOOR,
Speaker 1: and a few other central banks in Norway obviously have
Speaker 1: moved already. There's there's a couple of others in the frame,
Speaker 1: but not not the e c B. I mean, again,
Speaker 1: if we look at the head winds that we look
Speaker 1: at yesterday's German unemployment data, it improved, but not at
Speaker 1: the sort of rate that people were expected. If we
Speaker 1: look at Germany's exports, exports that they're very tied to China,
Speaker 1: and we know that China is slowing. We know that
Speaker 1: we've seen a part of Chinese and industrial district have
Speaker 1: be shut downs because of electricity shortages for instance. So
Speaker 1: I think Germany is facing the sort of headwinds. We
Speaker 1: do have an inelastic demand for energy, or relatively inelastic,
Speaker 1: and and it's very difficult to shift that in the
Speaker 1: short term. So with the higher energy prices really does
Speaker 1: respond to the lower demand and that actually could pull
Speaker 1: the economies into a weaker position and that could be
Speaker 1: a concern the central banks into the new year. So Janane,
Speaker 1: what we have to talk about just to explore is
Speaker 1: what happens to a developed market currency when a central
Speaker 1: bank needs to hike into economic weakness, how does that
Speaker 1: currency respond? And it's Sterling a decent example of that
Speaker 1: at the moment, oh, Sterling really is a decent example
Speaker 1: of that. We've seen hawkish commentary from the central bank
Speaker 1: not coming through into games for that currency. Now this
Speaker 1: could be because that the UK does have a significant
Speaker 1: current account deficit that could be increasing the vulnerability because
Speaker 1: as Internet international investors look in, they want to see
Speaker 1: the whole suite of fundamentals and what they've seen in
Speaker 1: the UK now are really nasty numbers of fuel price shortages,
Speaker 1: driver shortages, skills shortages, um and and the whole suite
Speaker 1: of these concerns is is way in. It appears on
Speaker 1: an investment expectations. We've seen that in the survey this
Speaker 1: morning from the UK's Institute of Directors and that is
Speaker 1: really bogging down Sterling right now. Jane, great to catch
Speaker 1: up with DETAINFX. Finally waking up a little bit. Jane
Speaker 1: Foley has been too long. Thank you, rubber Bank senior strategist.
Speaker 1: This is a joy, and it is a particular joy.
Speaker 1: As Bloomberg today recalibrated our iPhone sales guestimates forward and
Speaker 1: basically anorag Raga and John Butler said, the streets got
Speaker 1: it wrong. iPhone sales are booming. They're booming because of
Speaker 1: the confluence of engineering, an interior design, industrial design. I
Speaker 1: should say James Dyson joins us, and some would argue
Speaker 1: it's Steve Jobs. Learned it all from Dyson. He's a
Speaker 1: Dyson founder, the chief engineer. Full disclosure. I have a
Speaker 1: vacuum James Dyson invention of life and we're thrilled at
Speaker 1: Sir James could join us this morning. Sir James, when
Speaker 1: you see the success of what Jobs did with his aesthetic.
Speaker 1: What do you think of the iPhone is so much
Speaker 1: an equivalent of your design and engineering ability? Well, I
Speaker 1: don't think I got ready compare the two. I mean
Speaker 1: one's one's a phone, almost a piece of jewelry, and
Speaker 1: ours is as a machine that does things, mechanical machine.
Speaker 1: I mean increasingly we use software, artificial intelligence and so on,
Speaker 1: but but it's a you know, ours is a tool,
Speaker 1: a machine that you use, rather than a piece of jewelry.
Speaker 1: The original machine and I remember my father talking about this.
Speaker 1: It was a wheelbarrow which broke every rule. We had
Speaker 1: an access in an X y space and Dyson said, no,
Speaker 1: think x y Z space is on the edge of
Speaker 1: spherical geometry. When you figured out the bar barrow, what
Speaker 1: was the response, how much grief did you get? Um? Well,
Speaker 1: if the idea really was that it didn't sink into
Speaker 1: soft ground, because wheel bears tend to be used on
Speaker 1: building sites and and at home in the backyard on
Speaker 1: soft ground, and it's stupid to have a narrow wheel,
Speaker 1: which is what most of them have. So I did
Speaker 1: this huge ball wheel and then the the bin on
Speaker 1: wheelbarers is rather open bin incapable of holding cement safely
Speaker 1: inside it. Though I did a sort of dumper truck
Speaker 1: shape bin. I just rethought the wheel bearer from the
Speaker 1: ground up, as it were. But it's really quite a
Speaker 1: simple product, and we got fifty percent market share with it,
Speaker 1: so I did quite well. So, James, you wrote this
Speaker 1: book at a pivotal moment in the entire labor economy,
Speaker 1: and frankly on the precipice of the technological revolution that's
Speaker 1: going to accelerate to a new level. What would you
Speaker 1: say going forward is the biggest challenge for the next innovation,
Speaker 1: the next Dyson, the next Dyson vacuum cleaner, or whether
Speaker 1: it's the iPhone. How do you foster that type of innovation? Well,
Speaker 1: that's a very good point. I mean, I think we
Speaker 1: should be encouraging more and more young people to to
Speaker 1: become engineers and scientists. We're all talking about all the
Speaker 1: problems that exists at the moment and what the obvious ones,
Speaker 1: and it's engineers and scientists that can solve these problems.
Speaker 1: And the young particularly are passionate about these issues, you know,
Speaker 1: using less electricity, saving the world, using less fuel, uh
Speaker 1: and so on and finding a different form of plastic,
Speaker 1: something to replace plastic, and engineers and science scientists can
Speaker 1: solve this. But I think that's historically very few of
Speaker 1: us have wanted to become engineers and scientists, partly because
Speaker 1: it's difficult and it's hard, but also because somehow that
Speaker 1: it's never seen as glamorous, it's never seen as as
Speaker 1: as something that interests ordinary people. But it only will
Speaker 1: is now, you know. Greta Kumberg has made it an
Speaker 1: interesting subject. So, James, where in the world do you
Speaker 1: think that engineers are being most supported from an early age?
Speaker 1: And I speak of this as we do talk increasingly
Speaker 1: of the tech wars between the U S and China. Well,
Speaker 1: it's I mean, obviously a huge number of last number
Speaker 1: of engineers are being produced in China, but also in India.
Speaker 1: I mean Una, just one city in in India, for example,
Speaker 1: produces forty engineers a year, which is actually more than
Speaker 1: we produced in England. The whole of the sort of
Speaker 1: the whole of Great Britain. So um, you know, I
Speaker 1: think on the whole, so called developed countries are much
Speaker 1: worse at producing engineers and scientists than developing countries. For example,
Speaker 1: the Philippines producing more engineers than written um. And then
Speaker 1: you know, in the United States there's nineteen lawyers for
Speaker 1: every one engineer. That we've got to do something like
Speaker 1: it said, what what what we've been doing. We've been
Speaker 1: working in schools, actually been working in some schools in Chicago,
Speaker 1: but a lot of schools in England over a number
Speaker 1: of years. And we try to improve design and technology
Speaker 1: teaching in schools, so bringing real products into schools and
Speaker 1: encouraging children to solve problems. To see an engineering designers
Speaker 1: problem solving. So James, please please give us an update
Speaker 1: on Brexit. The last time I talked you, you're upon
Speaker 1: a soap box telling us let's go England, let's separate.
Speaker 1: Give us the Dyson update. And the success of Brexit, well,
Speaker 1: you've got to give it a chance, you know, because
Speaker 1: we can't change laws and get rid of red tape,
Speaker 1: European standards and all things overnight. That will happen over time.
Speaker 1: But a very good example of the success of Brexit
Speaker 1: is the Britain's development of the astra Zeneca vaccine was
Speaker 1: developed at Oxford, done totally independently, whereas the European program
Speaker 1: hasn't produced a vaccine yet. So I think that's a
Speaker 1: very good example of Britain going on its own, living
Speaker 1: by its wits and doing things independently. We've signed a
Speaker 1: lot of trade deals, not with you yet unfortunately, but
Speaker 1: we signed a lot of trade deals around the world, um,
Speaker 1: and I see it as a psychological change more than
Speaker 1: anything else. We've gone trading. We got trading with Europe
Speaker 1: as we have done for hundreds of years, and just
Speaker 1: as we did before we joined the EU and as
Speaker 1: we are now. So that the trade it doesn't really
Speaker 1: the issue. I think it's more psychological issue and an
Speaker 1: issue of solign sovereignty. The issue of sovereignty. Sovereignty is
Speaker 1: the greatest issue, I think, and that's what determined it
Speaker 1: in the end, Sir James, We're gonna have to leave states.
Speaker 1: Wouldn't want to be a subservient to Canadian law for example,
Speaker 1: for example. Very good, Sir James. Thank you so much.
Speaker 1: Sir James Dyson's folks new book, James Dyson Invention a Life.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
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Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg