WEBVTT - Surveillance: Sustained Expansion With Wieting 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrill and Lisa Brownwitz Jay Lee. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.880 dot Com, and of course on the Bloomberg Terminal. Joining 0:00:29.920 --> 0:00:31.840 us now one of the best on the streets. Steve Whiting, 0:00:31.920 --> 0:00:36.640 chief investment strategist and chief economist at City Global Wealth Investment. Steve, 0:00:36.720 --> 0:00:38.400 I want to start with a quote from Cathy Wood. 0:00:38.640 --> 0:00:40.319 The team and I were talking about this about five 0:00:40.360 --> 0:00:42.760 minutes ago, but Rita's follows. In our view, fears of 0:00:42.800 --> 0:00:45.440 inflation will give way to confusion and fears of recession 0:00:45.800 --> 0:00:47.800 during the next three to six months. If so, the 0:00:47.880 --> 0:00:52.840 rapid growth rates of truly innovative companies should be rewarded handsomely. Steve, 0:00:52.920 --> 0:00:55.760 your thoughts on that quote, Well, look, I think we're 0:00:55.760 --> 0:00:59.600 going to have some growth fears, which we should when 0:00:59.720 --> 0:01:03.760 we have faced a real threat, which is inflation. But 0:01:03.840 --> 0:01:06.680 I think it will come down and if it does, 0:01:07.120 --> 0:01:10.759 it's likely to help the expansion be sustained. It will 0:01:10.800 --> 0:01:13.440 be at a slower pace. We will not see a 0:01:13.560 --> 0:01:16.200 repeat of what we had in the last two years. 0:01:16.319 --> 0:01:19.640 You're all talking about these great returns. The COVID shock 0:01:19.760 --> 0:01:24.600 itself was extremely narrow and severe, and the policy medicine 0:01:24.640 --> 0:01:28.720 was incredibly widespread. It was destined to get us a 0:01:29.040 --> 0:01:32.800 powerful return in markets. It's been consistent with record high 0:01:32.800 --> 0:01:36.880 corporate profits for large firms. So therefore share prices did 0:01:36.880 --> 0:01:40.080 what they did. Uh, And when we look going forward, 0:01:40.360 --> 0:01:42.280 it's going to be a different environment. It's going to 0:01:42.360 --> 0:01:45.880 be an environment where we're trying to restrain all of 0:01:45.920 --> 0:01:50.040 the stimulus, and consequently, I think equity returns will slow 0:01:50.040 --> 0:01:52.320 as well. So the question will be both innovative companies 0:01:52.680 --> 0:01:56.000 um be rewarded in that environment, and they probably will 0:01:56.040 --> 0:01:59.200 over a longer period of time. But we're probably most 0:01:59.240 --> 0:02:02.800 importantly going to see investors need to focus in on 0:02:03.400 --> 0:02:07.160 generating income in portfolios. And that means again some of 0:02:07.200 --> 0:02:11.079 the more higher quality stable companies were not saying to 0:02:11.960 --> 0:02:14.839 take out any of the innovation portfolios, but definitely put 0:02:14.880 --> 0:02:18.240 in um a little bit of caution with inequity portfolios. 0:02:18.680 --> 0:02:22.120 How do you define quality, Steve Well, this would be 0:02:22.200 --> 0:02:27.920 earning stability, dived in growth, consistent income flows the firms 0:02:27.960 --> 0:02:31.600 again that are not necessarily taking moon shots, but have 0:02:32.800 --> 0:02:35.400 very very steady cash flows that they pay out to 0:02:35.520 --> 0:02:39.600 investors at a higher premium return than bond market deals. 0:02:40.960 --> 0:02:43.280 So not a lot of growth or do you think 0:02:43.280 --> 0:02:47.360 you can get quality growth as well? So I don't 0:02:47.400 --> 0:02:51.359 really think for example, growth and value metrics have been 0:02:51.720 --> 0:02:56.480 really really good ways to drive portfolios. We've really needed 0:02:56.480 --> 0:02:59.360 to look at cyclicals and defenses and what we wanted 0:02:59.400 --> 0:03:02.160 to do. You know, after having a period in which 0:03:02.520 --> 0:03:06.200 many of the cyclical shares have outperformed by double digits, 0:03:06.400 --> 0:03:09.600 where we think that we're at peak cyclical momentum, we're 0:03:09.639 --> 0:03:13.480 actually passing it, with factory orders, for example, near the 0:03:13.520 --> 0:03:17.320 highest levels we've ever seen. That. You want again think 0:03:17.320 --> 0:03:20.359 about some of the more stable industries. Our largest overweights 0:03:20.360 --> 0:03:23.800 are in healthcare shares. We think that consumer staples, which 0:03:23.840 --> 0:03:27.440 suffered the rise in commodity prices over the past year, 0:03:27.880 --> 0:03:32.480 will start to see that uh negative drag EBB, and 0:03:32.520 --> 0:03:34.679 they can catch up some in performance while paying some 0:03:34.800 --> 0:03:37.320 high dividends. Now, if we take a look beneath the 0:03:37.360 --> 0:03:41.000 surface again, we do think that there are unstoppable trends 0:03:41.000 --> 0:03:44.400 that have suffered from the rebound in cyclicals. In terms 0:03:44.400 --> 0:03:48.200 of relative performance, we think about alternative energy, or fintech 0:03:48.640 --> 0:03:52.440 or cyber security, these really long term performers which have 0:03:52.480 --> 0:03:56.280 a good performance over a few years, but weren't for example, 0:03:56.400 --> 0:03:59.720 energies or energy or banks in one which had the 0:04:00.160 --> 0:04:03.200 down effect that some of those shares again will probably 0:04:03.200 --> 0:04:05.960 outperform well, particularly if you can look at it in 0:04:06.000 --> 0:04:08.880 a five year return window. Steve, you're thinking about, you'll 0:04:08.920 --> 0:04:12.400 converis your onnication exposure across the industries, focus through how 0:04:12.440 --> 0:04:16.080 you're thinking about exposed aroundication across regions, geographies beyond the 0:04:16.120 --> 0:04:20.520 United States. Well, at the moment it's a bit more 0:04:20.600 --> 0:04:24.719 overweight the US than other regions, and that's partly because 0:04:24.720 --> 0:04:28.240 of FED tightening. Now, I would contrast that a little 0:04:28.279 --> 0:04:31.039 bit with where we were in two thousand thirteen through 0:04:31.080 --> 0:04:33.960 two thousand eighteen. That period again with the onset of 0:04:34.000 --> 0:04:37.919 the end of QE FED tightening from two thousand fifteen 0:04:37.960 --> 0:04:41.400 explicitly at rate hikes nine rate hikes from fifteen to eighteen, 0:04:41.920 --> 0:04:44.560 that was a period in which the US dollar was 0:04:44.640 --> 0:04:49.120 extremely weak. At the starting point oil petroleum hundred dollars 0:04:49.120 --> 0:04:51.960 from many years while the US double oil output. We 0:04:52.080 --> 0:04:57.159 subsequently had a six dropping oil surgeon the dollar of 0:04:57.200 --> 0:05:00.400 the course of two thousand fourteen. That dynamic we think 0:05:00.520 --> 0:05:02.960 is not going to be as severe this time, partly 0:05:03.040 --> 0:05:06.239 because the dollar is much higher on a trade weighted basis, 0:05:06.279 --> 0:05:09.839 on an inflation adjusted basis, both against emerging markets currencies 0:05:10.520 --> 0:05:14.520 as well as UH developed markets currencies. Um if we 0:05:14.560 --> 0:05:17.400 take a look at China, for example, its emputy market 0:05:17.520 --> 0:05:20.520 was soaring into the start of FED tight. This time 0:05:20.560 --> 0:05:25.240 it's down at its low point as the FED begins tight. 0:05:25.560 --> 0:05:27.800 So it's a different set up here. I think that 0:05:27.920 --> 0:05:30.840 international non US dollar assets will hold it a little 0:05:30.839 --> 0:05:33.600 bit better, but we still biased ourselves a little bit 0:05:33.680 --> 0:05:38.400 here with the defensive growth industries within the US market. Well, 0:05:38.480 --> 0:05:40.960 Steve talking about FED policy, and we just ran through 0:05:41.000 --> 0:05:43.279 some f X commodities and of course equities as well. 0:05:43.320 --> 0:05:45.719 In the bond market, Can you take your assumptions about 0:05:45.760 --> 0:05:47.480 what the FED will do next year, where you think 0:05:47.520 --> 0:05:49.560 inflation or growth are going and make a call with 0:05:49.680 --> 0:05:54.520 conviction on where you think the tenure will endo. No, 0:05:54.640 --> 0:05:58.000 not with much conviction, but it's at a level, at 0:05:58.000 --> 0:06:02.200 a rate level that is offer ring negative real returnment's 0:06:02.240 --> 0:06:05.280 probably out for the decade. You can just take a 0:06:05.279 --> 0:06:09.240 look at the treasure inflation protected securities market. We do 0:06:09.400 --> 0:06:14.000 think that ten year average consumer price inflation will be 0:06:14.080 --> 0:06:16.240 on the order of two and a half percent. We're 0:06:16.279 --> 0:06:19.400 not really disagreeing with the bond market. The rise in 0:06:19.400 --> 0:06:22.800 inflation expectation that we've seen, we think is very realistic. 0:06:23.200 --> 0:06:25.800 The Federal Reserve and other central banks are not going 0:06:25.839 --> 0:06:29.640 to try to knock down the trend inflation rate by 0:06:29.880 --> 0:06:35.840 using recession again to opportunistically push down inflation. But even 0:06:35.880 --> 0:06:38.839 then we think that the rate of inflation will come down, 0:06:38.920 --> 0:06:42.560 that there were some unusual aspects to both demand and supply, 0:06:43.000 --> 0:06:47.880 stimulus and distortions in the past two years particularly, and 0:06:48.000 --> 0:06:49.880 some of that can come off. So in other words, 0:06:50.200 --> 0:06:53.640 we think that we can see modestly rising real yields, 0:06:53.760 --> 0:06:56.599 but this is not compelling enough to get us to 0:06:56.640 --> 0:06:59.400 really move into safer fixed income. We do have an 0:06:59.440 --> 0:07:03.720 overweight in tips. We've contemplated reducing it's um uh. It's 0:07:03.760 --> 0:07:06.840 really been well positioned to get these upward inflation surprises, 0:07:07.040 --> 0:07:10.040 but now the tips market is at a high valuation. 0:07:11.200 --> 0:07:13.640 Steve got to leave it there as always, buddy, thank you, 0:07:13.760 --> 0:07:16.040 thank for everything. This year and the Small Night Steve 0:07:16.080 --> 0:07:25.160 Wanting of City Global Wealth Investments. We're talking about this 0:07:25.240 --> 0:07:27.040 virus a lot. Let's do continue to do that with 0:07:27.040 --> 0:07:30.280 Debora Fuller, Professor of microbiology at the University of Washington 0:07:30.360 --> 0:07:33.600 School of Medicine. Deborah, since we last spoke, we have 0:07:33.640 --> 0:07:35.920 seen a change in guidance from the CDC from a 0:07:35.960 --> 0:07:39.679 ten day isolation period to five isolation days five days 0:07:39.720 --> 0:07:42.120 after that wearing a mask. That's if you yourself have 0:07:42.240 --> 0:07:45.520 tested positive. But for families across the country who have 0:07:45.560 --> 0:07:47.480 just gathered over the holidays, now no, they may have 0:07:47.520 --> 0:07:50.480 had direct exposure with someone who was positive, or are 0:07:50.840 --> 0:07:52.640 living in the same house as one and they don't 0:07:52.680 --> 0:07:55.840 test positive themselves. What does the science say that those 0:07:55.840 --> 0:07:59.480 people should do. Right? It really depends on if your 0:07:59.560 --> 0:08:02.880 vaccine needed or not. So there's two different sort of levels. 0:08:02.920 --> 0:08:06.840 Isolation really means if you did test positive, then you 0:08:06.920 --> 0:08:09.160 need to self isolate for five days. So say that 0:08:09.240 --> 0:08:12.119 family member comes home and and they start to feel 0:08:12.120 --> 0:08:15.800 sick and go get tested and they become positive for 0:08:16.120 --> 0:08:20.000 COVID nineteen, they should self isolate within your home for 0:08:20.040 --> 0:08:23.680 five days and then after five days, uh, they can 0:08:23.680 --> 0:08:26.040 come out with their mask on and hang out with 0:08:26.080 --> 0:08:28.080 you that way. Now, if the rest of the family 0:08:28.120 --> 0:08:31.400 members are vaccinated, that means that you know, you were 0:08:31.440 --> 0:08:35.160 just exposed to somebody. Uh. If you're vaccinated, you do 0:08:35.240 --> 0:08:38.720 not need to quarantine, okay, but you do need to 0:08:38.760 --> 0:08:40.800 go around. If you go out and about, you need 0:08:40.880 --> 0:08:44.040 to wear your masks for a minimum of ten days. 0:08:44.080 --> 0:08:46.200 So that's that's sort of the recommendation. Now, if you 0:08:46.280 --> 0:08:48.480 become positive, now you are in the same boat of 0:08:48.600 --> 0:08:51.319 your as your family member and you need to self 0:08:51.360 --> 0:08:54.439 isolate well, and some of the other confusing messaging we've 0:08:54.480 --> 0:08:56.880 gotten out of the CDC. Rochelle Wallinski, who heads up 0:08:56.920 --> 0:09:01.000 that agency, was speaking yesterday saying that there isn't necessarily 0:09:01.120 --> 0:09:04.880 the science doesn't tell us exactly whether positive tests actually 0:09:05.559 --> 0:09:08.600 indicates your ability to transmit the virus, saying people shouldn't 0:09:08.600 --> 0:09:11.600 get PCR tests after they've test positive because it may 0:09:11.640 --> 0:09:14.000 tell you that you're still positive for weeks to come. 0:09:14.080 --> 0:09:17.720 What do we actually know about the connection between positivity 0:09:18.000 --> 0:09:20.360 and then giving that to other people, especially with a 0:09:20.440 --> 0:09:24.959 macron that is more contagious. Right. The PCR test is 0:09:25.000 --> 0:09:28.520 a test that actually measures the sequences of the virus. UH, 0:09:28.559 --> 0:09:31.560 and what can happen is that even after you have 0:09:31.720 --> 0:09:34.440 cleared the virus from your body, you can still have 0:09:34.480 --> 0:09:37.480 those sequences stick around for quite some time. And so 0:09:37.520 --> 0:09:41.560 what's happening is a PCR can potentially measure dead virus, 0:09:41.679 --> 0:09:46.040 so you can potentially come up positive by PCR for 0:09:46.040 --> 0:09:49.160 for weeks even after you have cleared it. UH. The 0:09:49.280 --> 0:09:52.360 energy and test is a little bit more specific in 0:09:52.480 --> 0:09:55.880 terms of it only comes up if you're really shedding 0:09:56.000 --> 0:09:58.560 some virus. But the difficulty there is that is not 0:09:58.679 --> 0:10:03.040 necessarily a sensitive as a PCR test. However, with the 0:10:03.120 --> 0:10:05.920 self home testing, if you can take that on say 0:10:05.920 --> 0:10:09.800 a daily basis, the repeated testing of it UH and 0:10:09.960 --> 0:10:13.880 repeated say coming up positive or coming up negative, that's 0:10:13.880 --> 0:10:17.280 going to provide much more assurance and confidence of whether 0:10:17.280 --> 0:10:20.880 you're positive or negative. It seems to me you should 0:10:20.920 --> 0:10:23.800 just use conservative common sense and then we'll all be okay. 0:10:23.840 --> 0:10:27.600 I mean, obviously exactly exactly, just spent the holiday season 0:10:27.640 --> 0:10:30.280 with somebody who tested positive. You should chill out for 0:10:30.320 --> 0:10:33.160 a while and probably wear a mask when you're out. 0:10:33.160 --> 0:10:35.680 And about I wonder about long COVID, Deborah, what do 0:10:35.720 --> 0:10:42.359 we know about people who UM suffer you know, infections 0:10:42.520 --> 0:10:46.040 or or or or or disease that might indicate infections 0:10:46.080 --> 0:10:50.400 that have gone beyond the respiratory system exactly. Yeah, this 0:10:50.520 --> 0:10:53.520 is the big unknown right now. There's just there is 0:10:53.559 --> 0:10:56.960 a lot of research going on right now to understand 0:10:57.040 --> 0:11:01.160 better what are the causes, what are the mechanisms underlying 0:11:01.360 --> 0:11:04.719 long covid. We do know that a virus infection does 0:11:04.880 --> 0:11:10.280 cause uh inflammation, and sometimes inflammation even long after the 0:11:10.400 --> 0:11:14.440 virus has cleared, the body can persist and can sort 0:11:14.440 --> 0:11:17.600 of has a feedback loop that can continue to cause 0:11:17.960 --> 0:11:21.600 uh inflammatory responses in any part of your body. Uh. 0:11:21.600 --> 0:11:25.480 And to some extent, we believe that that is related. 0:11:25.520 --> 0:11:29.760 Long covid may be late related to this durable inflammatory response, 0:11:30.120 --> 0:11:32.920 but we really don't know for sure. Uh. And so 0:11:33.040 --> 0:11:37.040 that's really an area of ongoing study and we're gonna 0:11:37.120 --> 0:11:39.800 learn more and more about it. And certainly, uh, you know, 0:11:39.880 --> 0:11:41.960 one of the big reasons why I tell people you 0:11:42.080 --> 0:11:45.240 really do not want to get this virus. It's something 0:11:45.280 --> 0:11:48.000 that you don't know long term how that's going to 0:11:48.040 --> 0:11:52.960 impact your body. Although isn't it likely that we all 0:11:53.000 --> 0:11:56.520 are going to get this virus? I mean, especially now 0:11:56.559 --> 0:12:00.520 that we're seeing numbers approaching two million new affections globally 0:12:00.679 --> 0:12:03.120 in a single day. And we've seen that now three 0:12:03.200 --> 0:12:06.840 days in a row. Are we not all gonna get 0:12:06.880 --> 0:12:09.040 most of us going to get this? I mean I'm America, 0:12:09.160 --> 0:12:11.720 I remember and not only was she the Chancellor of 0:12:11.760 --> 0:12:15.800 Germany but also um a PhD In chemistry At the 0:12:15.920 --> 0:12:20.319 very beginning of said seventy percent of the population is 0:12:20.320 --> 0:12:23.960 going to get this? Yeah, yeah, especially with a macron 0:12:24.000 --> 0:12:30.120 being so widespread and and and uh so massively transmissible. Uh, 0:12:30.160 --> 0:12:33.800 there is an expectation the majority of us we'll get exposed. 0:12:34.120 --> 0:12:37.840 Uh will we all come up positive, I'll get COVID. Really, 0:12:38.200 --> 0:12:42.280 to a great extent, vaccination is going to make a 0:12:42.360 --> 0:12:45.000 huge difference there. We've seen that you know, when you 0:12:45.040 --> 0:12:49.760 get vaccinated, uh, that you're able to recover much more quickly. Uh, 0:12:50.000 --> 0:12:52.640 that there are a lot to higher chance of having 0:12:52.880 --> 0:12:58.079 uh if you're come a positive asymptomatic infection. So vaccination 0:12:58.120 --> 0:13:00.800 really does help to more effect to really clear that 0:13:00.880 --> 0:13:04.560 virus from the body and control that inflammatory response that 0:13:04.679 --> 0:13:09.160 typically arises in response to the infection. All right, Deborah Fuller, 0:13:09.280 --> 0:13:11.559 University of Washington School of Medicine, Thank you so much 0:13:11.600 --> 0:13:20.079 for sharing some time with us this morning. Jonas Now 0:13:20.120 --> 0:13:22.840 on the geopolitics as President Biden, President Pudina said to 0:13:22.840 --> 0:13:25.400 hold a phone call a little bit later today, Tina Fordham. 0:13:25.440 --> 0:13:28.360 They had a global political strategy Avon Hearst and Tina 0:13:28.440 --> 0:13:32.839 picking up on your line. The geopolitical trifecta of Russia, Ukraine, China, 0:13:32.920 --> 0:13:38.120 Taiwan and Iran all the more volatile given the perceived 0:13:38.200 --> 0:13:40.680 weakness of the West. Can you talk to me about 0:13:40.720 --> 0:13:46.839 that weakness? Tina, yes, absolutely well from where putting a 0:13:46.960 --> 0:13:51.480 sitting and engaging. They look at the West's response to 0:13:51.520 --> 0:13:58.839 the pandemic, very high death tools, um, the the vaccine skepticism, 0:13:59.520 --> 0:14:04.360 the kind of internal tensions and polarization, and have concluded 0:14:05.040 --> 0:14:08.800 that their pre existing pre pandemic narrative of a Western 0:14:08.920 --> 0:14:12.679 decline has been accelerated. And I think this is something 0:14:12.720 --> 0:14:17.040 that global investors have failed to appreciate, that there was 0:14:17.160 --> 0:14:21.240 this existing narrative that the West was in a kind 0:14:21.240 --> 0:14:24.600 of a slow decline, and that the pandemic as a 0:14:24.600 --> 0:14:28.400 as a crisis accelerating existing trends, has just sped that up. 0:14:28.520 --> 0:14:30.680 And so what I the point I want to make 0:14:30.840 --> 0:14:35.040 is that that possibly changes their political calculus when it 0:14:35.120 --> 0:14:39.680 comes to making mischief in geopolitics. When we talk about 0:14:39.680 --> 0:14:44.880 the West, Tina, are we primarily talking about the United States? Well, 0:14:44.960 --> 0:14:48.000 I mean, we used to have this term the international 0:14:48.040 --> 0:14:51.040 community in the olden days. Nobody talks about that so 0:14:51.120 --> 0:14:54.080 much anymore. But you know, we can say that G seven, 0:14:54.600 --> 0:14:59.520 that the advanced democracies UM and the notion that these countries, 0:15:00.040 --> 0:15:02.760 you know, even as recently as the global financial crisis 0:15:03.080 --> 0:15:07.280 got together in times of crisis and developed policy tools, 0:15:07.920 --> 0:15:11.320 we haven't had that in the pandemic. Many people might 0:15:11.560 --> 0:15:15.200 try to blame President Trump for this, but in fact, uh, 0:15:15.280 --> 0:15:18.880 this erosion of you know, working together on collective action 0:15:18.920 --> 0:15:22.800 problems predates Trump. UM. But it means that there is 0:15:22.840 --> 0:15:25.920 an opportunity, if you are a rogue or a challenger 0:15:25.960 --> 0:15:29.920 actor to try to UM test boundaries and when it 0:15:29.960 --> 0:15:35.000 comes to a military response or other ways of challenging 0:15:35.040 --> 0:15:38.960 the international status quo. You know, I look at your 0:15:39.520 --> 0:15:43.800 research and I see on your wall of worry slide 0:15:44.440 --> 0:15:48.080 supply chain and fuel price crisis right in the upper 0:15:48.160 --> 0:15:51.040 left corner. That's been the biggest problem for markets. That's 0:15:51.120 --> 0:15:54.520 been the biggest problem for UM. The economies of the 0:15:54.520 --> 0:16:01.280 world due to COVID. Do you see any recovery there? Well? So, 0:16:01.320 --> 0:16:05.880 I think inflation, supply chain issues and and the fuel 0:16:05.880 --> 0:16:09.880 price crises are clearly the main drivers of risk in markets. 0:16:09.920 --> 0:16:11.800 And the point that I want to make there is 0:16:11.840 --> 0:16:15.520 that there are also huge problems for incumbent governments and 0:16:15.560 --> 0:16:19.720 are going to cause a range of attempted policy responses 0:16:19.760 --> 0:16:24.200 and maybe even poor policy responses. And most investors haven't 0:16:24.240 --> 0:16:29.400 been in a situation of managing through this combination of factors, 0:16:29.440 --> 0:16:33.440 and I want to put geopolitical risks on top of it. Um, 0:16:34.000 --> 0:16:39.560 I'm not sure that I'm expecting resolution anytime soon because 0:16:39.640 --> 0:16:43.640 in many ways it it suits UM some of these 0:16:43.920 --> 0:16:47.120 challenger actors to have these levers. And that's where the 0:16:47.200 --> 0:16:52.080 Russia Ukraine UM crisis comes in, with troops massing on 0:16:52.120 --> 0:16:55.160 that border. Ultimately is that going to be about nord 0:16:55.200 --> 0:16:58.200 Stream too and fuel supplies to Europe? But that's certainly 0:16:58.240 --> 0:17:01.360 a big part of what's going on. Yeah, I always 0:17:01.360 --> 0:17:03.880 go back to that. I can't remember what network had 0:17:03.920 --> 0:17:07.600 a series called Occupied where I think Russia takes over 0:17:08.080 --> 0:17:12.840 Norway because Europe wants to keep the gas flowing. How 0:17:14.080 --> 0:17:17.919 strong is that lever? I mean, how much leverage does 0:17:17.960 --> 0:17:22.280 Vladimir Putin have in that he's supplying um, one of 0:17:22.280 --> 0:17:25.960 the most important civilizations in the world with natural gas. 0:17:26.000 --> 0:17:30.879 That's indispensable. Sure, well, I think we can. You know, 0:17:30.920 --> 0:17:35.640 we can characterize Russia's capacity in one word, and that 0:17:35.760 --> 0:17:39.560 is that it's a It's a spoiler and a disruptor. Right, 0:17:39.680 --> 0:17:43.639 Russia has many levers. Uh, the gas supply one is 0:17:43.680 --> 0:17:46.320 the most significant one for markets. But what I think 0:17:46.359 --> 0:17:49.600 people tend to forget is that all of these smaller 0:17:49.640 --> 0:17:53.880 things that are happening around the margins, like the weaponization 0:17:53.960 --> 0:17:59.840 of refugees coming from from Belarus, to the tensions with 0:18:00.040 --> 0:18:04.320 the Baltic States, Poland, et cetera, these are also about 0:18:04.400 --> 0:18:07.760 undermining European unity. And we can see that the new 0:18:07.840 --> 0:18:11.120 German government has in fact not signed off on nord 0:18:11.200 --> 0:18:14.640 Stream too, even though mercles government was was very much 0:18:14.720 --> 0:18:18.639 behind it. So you know, this, this ramping up of 0:18:18.760 --> 0:18:21.880 tensions with Ukraine you mentioned the phone call today between 0:18:22.359 --> 0:18:25.480 Biden and Putin is also a way of saying of 0:18:25.880 --> 0:18:30.840 Moscow saying, we have ways of making your lives difficult. 0:18:30.960 --> 0:18:33.440 We are forced to be reckoned with. We have real 0:18:33.640 --> 0:18:37.280 leverage in these discussions and don't forget about us. Atina. 0:18:37.359 --> 0:18:39.160 Wonderful to catch up with you through much of this year, 0:18:39.200 --> 0:18:41.680 and thank you for your contribution, not just this morning 0:18:41.680 --> 0:18:44.840 but through the forum there of Avon Hurst. Thank you 0:18:44.960 --> 0:18:54.000 very much. We're talking about whether or not monetary policy 0:18:54.040 --> 0:18:56.000 is going to get tighter, what that actually means, but 0:18:56.080 --> 0:18:58.560 what will the read through be to the equity markets. Amy, 0:18:58.560 --> 0:19:00.320 we still from an equity derivative star to just an 0:19:00.400 --> 0:19:03.760 RBC Capital Markets joining us now. Amy, we focus a 0:19:03.760 --> 0:19:07.640 lot on how easier money means kind of subdued volatility. 0:19:07.680 --> 0:19:10.000 In theory, that would mean that once you start to 0:19:10.040 --> 0:19:13.239 see that being pulled back, volatility will remain elevated. You 0:19:13.280 --> 0:19:19.560 see it instead normalizing though in two even further Why yeah, 0:19:19.600 --> 0:19:22.439 you know it's interesting. I'll just give you one data point. 0:19:22.520 --> 0:19:25.080 In two thousand and eight, we hit essentially the same 0:19:25.160 --> 0:19:28.840 volatility backs levels that we did during the pandemic. It 0:19:28.880 --> 0:19:31.679 took us four more years to normalize back the pre 0:19:31.800 --> 0:19:35.200 two thousand eight levels. We've already done it, Kaylee. Between 0:19:36.920 --> 0:19:40.359 there's been a five realized volatiley point drop in the 0:19:40.480 --> 0:19:43.840 averages we're seeing as this year closes, and I think 0:19:43.840 --> 0:19:47.680 that continues because even though we get pockets of realized volatility, 0:19:47.920 --> 0:19:50.960 the volatility market is essentially already gotten used to this 0:19:51.040 --> 0:19:54.879 new normal. And also we've seen this year and this 0:19:55.640 --> 0:19:58.439 comes back to easy money buying. The dip has worked 0:19:58.480 --> 0:20:00.879 every single time. It has been the can sistants behavior? 0:20:01.000 --> 0:20:03.399 Do you think that will change in the year ahead? 0:20:05.160 --> 0:20:08.120 I actually think it will not. I think we're going 0:20:08.160 --> 0:20:12.400 to get another you know, game stop, a mc meme 0:20:12.560 --> 0:20:16.040 slash yolo situation again this year. You know, unfortunately I 0:20:16.080 --> 0:20:19.639 cannot predict what stock will be the target, but you know, 0:20:19.720 --> 0:20:23.400 we tracked that very closely through skewing versions, looking at 0:20:23.440 --> 0:20:26.840 these called demand levels compared to put demand levels. And 0:20:26.880 --> 0:20:29.360 I think it's going to be very correlated to what 0:20:29.400 --> 0:20:32.680 we see happen with the cryptocurrency path this coming year, 0:20:33.160 --> 0:20:36.920 especially with regulatory uh, you know, items coming down the line. 0:20:38.240 --> 0:20:41.920 What do you look back at um to help you predict? 0:20:43.240 --> 0:20:47.119 I mean, do you compare the COVID pandemic to the 0:20:47.119 --> 0:20:51.639 global financial crisis to the Internet bubble verset? How do 0:20:51.680 --> 0:20:57.080 you how do you gather the experience necessary to look forward? Yeah, 0:20:57.119 --> 0:20:59.479 that that's exactly right. That's a big part of it. 0:20:59.600 --> 0:21:03.800 We look get seasonality changes sliced up both through realized 0:21:03.800 --> 0:21:06.480 and applied volatility levels, you know, back essentially as far 0:21:06.480 --> 0:21:10.320 as we can go even to UH. And one of 0:21:10.320 --> 0:21:14.040 the really interesting facts is during the pandemic, we hit 0:21:14.119 --> 0:21:18.240 volatility levels that actually surpassed seven as well as the 0:21:18.280 --> 0:21:21.639 other crises you mentioned. And so the fact that we've 0:21:21.680 --> 0:21:25.880 come down to pre pandemic levels within the last two 0:21:26.000 --> 0:21:28.800 years compared to all the other situations where it took 0:21:29.080 --> 0:21:31.359 four to five years and normalize just kind of tells 0:21:31.400 --> 0:21:35.040 you how resilient the market has been overall and how 0:21:35.119 --> 0:21:37.800 that has led down into the volatility markets as well. 0:21:38.960 --> 0:21:44.160 In terms of volatility, we still have UM a lot 0:21:44.200 --> 0:21:48.040 of elevated UH indicators. For example, if I look at 0:21:48.320 --> 0:21:51.480 UM price earnings ratios, we're still at twenty six. I 0:21:51.480 --> 0:21:55.320 think historically UM the level is around seventeen to twenty. 0:21:57.119 --> 0:21:59.639 What do you see. How long do you see this 0:21:59.680 --> 0:22:03.240 market taking to get really back to normal from the pandemic. 0:22:05.240 --> 0:22:08.240 You know, I think it happens next year. One thing 0:22:08.359 --> 0:22:11.399 I would point to is the way we're going to 0:22:11.480 --> 0:22:15.520 see disparity, particularly in options, is going to be within 0:22:15.560 --> 0:22:19.359 the different subsectors and factors. So you know, as interest 0:22:19.520 --> 0:22:21.800 rates rise, you're going to start to see that distinction 0:22:21.920 --> 0:22:25.080 between value between growth and so I think you'll see 0:22:25.119 --> 0:22:28.920 pockets of volatility difference between an IWM or queues or 0:22:29.000 --> 0:22:31.920 a spy, But that overall level, I think when we're 0:22:31.960 --> 0:22:35.879 sitting here at the end of UM, you know, we 0:22:36.000 --> 0:22:38.560 will probably be at at a twelve where eleven handle 0:22:38.600 --> 0:22:41.520 in terms of realized volatility. It's certainly a sub twenty 0:22:41.640 --> 0:22:44.479 level in the VIX. I mean, I want to come 0:22:44.480 --> 0:22:47.040 back to the retail investor because you mentioned game stop, 0:22:47.040 --> 0:22:49.080 and I cannot believe that that was a phenomenon that 0:22:49.119 --> 0:22:51.720 began almost an entire year ago. In some ways, it 0:22:51.720 --> 0:22:53.760 feels like it was just last month. But when I 0:22:53.800 --> 0:22:56.000 think about the factors that were driving that activity on 0:22:56.040 --> 0:22:59.320 the part of retail traders, we had had massive government stimulus, 0:22:59.359 --> 0:23:01.679 they had more money in their pockets, and you obviously 0:23:01.760 --> 0:23:05.720 had ample liquidity provided by the Federal Reserve. If those 0:23:05.760 --> 0:23:08.800 two things are normalizing, why would retail activity not be 0:23:08.840 --> 0:23:13.040 more subdued as a result. I think that's a great question, 0:23:13.080 --> 0:23:16.280 and I think part of the answer is that probably Well, however, 0:23:16.840 --> 0:23:20.200 you know, look, the person who is on robin Hood 0:23:20.240 --> 0:23:24.080 and trading game stop options is really the same person 0:23:24.119 --> 0:23:27.320 who's also owning bitcoin and ethereum and you know that 0:23:27.359 --> 0:23:30.000 whole suite of things. And so look, if we go 0:23:30.040 --> 0:23:34.959 into two and we get a massive rise in cryptocurrencies, 0:23:35.119 --> 0:23:38.120 you're going to see that wealth effect I think, uh 0:23:38.160 --> 0:23:40.880 spread over into the options again. You know, we know 0:23:41.119 --> 0:23:44.600 that this investor is both savvy in both pockets. And 0:23:44.640 --> 0:23:46.440 the other thing I think is interesting is, I don't 0:23:46.440 --> 0:23:48.480 know if you recall back in November when we kind 0:23:48.480 --> 0:23:51.280 of had that volatility freak out, uh, you know, with 0:23:51.480 --> 0:23:54.760 vix kind of really ramping up plus six percent that month, 0:23:55.200 --> 0:23:58.720 you actually saw the retail cohort owning puts, which is 0:23:58.760 --> 0:24:01.479 something that they hadn't done the entire pandemic, but they're 0:24:01.520 --> 0:24:04.880 clearly capable of doing um. So it may not even 0:24:04.920 --> 0:24:07.159 be that they're trying to own upside groupcalls. If they 0:24:07.200 --> 0:24:09.960 see this market going down, that you might actually see 0:24:10.000 --> 0:24:12.840 that put option volume really spreading as well. To let 0:24:12.840 --> 0:24:16.480 the record show retail traders can be barish on some occasions. Aimy, 0:24:16.520 --> 0:24:18.800