Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Ley, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. To find Bloomberg Surveillance on Apple Podcast, Suncloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg terminal.
Speaker 1: He is the offspring of Greek immigrants. He went to
Speaker 1: Tufts University and he wrote an essay on Shearson Way
Speaker 1: before it was Shearson Lehman. The essay was so impressive
Speaker 1: a guy named Wile hired him and thus began the
Speaker 1: banking career of one James Diamond, of course, of JP Morgan,
Speaker 1: their chairman and their chief executive officer, A Baker scholar
Speaker 1: at Harvard. Jamie Diamond went from bank one out in
Speaker 1: the Midwest to Commanding Fortress Diamond at JP Morgan. Harry
Speaker 1: is on COVID with there Ed Hammond. Getting through COVID
Speaker 1: is absolutely critical and we're still in it though God
Speaker 1: knows what looks like. There's light at the end of
Speaker 1: the tunnel, you know, by the beginning of summer or
Speaker 1: something like that. But it's not a binary subject. I
Speaker 1: think you know, Democrats Republicans are like ships passing the night.
Speaker 1: There are legitimate complaints about stuff from this bill. Has
Speaker 1: nothing to do with COVID. There are a lot of
Speaker 1: people suffering. You need help. Both are true. So if
Speaker 1: you want to go through, you go through all the detail.
Speaker 1: Unemployed they definitely need help. Small businesses they definitely need help.
Speaker 1: People at the lower end, they definitely need help. Women
Speaker 1: who had to go home, who basically stopped working. Is
Speaker 1: that it go take care or something like that. They
Speaker 1: definitely need help. You know, does every I don't know
Speaker 1: if you know this, but like half the states revenues
Speaker 1: went up, they needn't go down. Do they need help?
Speaker 1: You know? And we're just throwing money at people at
Speaker 1: one point, so and there will be another side to
Speaker 1: that mountain. So they should be cautious about overdoing it.
Speaker 1: Get us through the problem, get the country growing, but
Speaker 1: you know, don't try not to overdo it too much.
Speaker 1: But isn't the risk exactly that if you have places
Speaker 1: and states people that don't need help and getting to
Speaker 1: help you out of the cyst to you do create
Speaker 1: this huge risk of inflation. And the system already has
Speaker 1: a little bit of that so if you look at
Speaker 1: which in the system that looks to us like there's
Speaker 1: a trillion dollars a trillion is unspent. That's before there's
Speaker 1: billion nine trillion nine, So there will be money. Like
Speaker 1: you know, there's a very good chance you're gonna have
Speaker 1: a game buster economy for the rest of this year
Speaker 1: and you know, easily into two. And the question is
Speaker 1: does that overheat everything? And we just don't know yet.
Speaker 1: But I would put that on the things to worry
Speaker 1: about now. I wouldn't worry too much about it. I
Speaker 1: would worry more about COVID and nuclear war that I'd
Speaker 1: worry about that, but I would. I would suspect there's
Speaker 1: a pretty good chance you're gonna see why he's going up,
Speaker 1: and you know, people starting to worry about that at
Speaker 1: one point. Let's talk about COVID for a second. I've
Speaker 1: been very clear I would not buy ten year treasuries,
Speaker 1: just so you know. Um On on COVID. We are
Speaker 1: obviously doing a interview in person, which is fantastic with
Speaker 1: doing it in your offices here in New York, but
Speaker 1: still largely empty as of my officers, as probably are
Speaker 1: a lot of people's offices. How important is it to
Speaker 1: a business like Jeplegan to actually have people physically coming
Speaker 1: back to work. It's very important. I mean, I look,
Speaker 1: I do think would be part of the world where
Speaker 1: a certain amount of people work from home permanently, certain sales,
Speaker 1: certain opts, so you can track the productivity, etcetera. I
Speaker 1: think there'll be a large portion who permanently work in
Speaker 1: the office. Think of our branches, cash management, probably most
Speaker 1: the trading floors, etcetera. And there'll be some hybrids where
Speaker 1: you spent two days two weeks at home and two
Speaker 1: weeks in the officer of three weeks at home a
Speaker 1: week in the office, or three days and two days
Speaker 1: and two days three days. But so I think it
Speaker 1: will reduce the need for commercial real estate. But they
Speaker 1: are huge weaknesses to the zoom world. I mean, most
Speaker 1: of us learned by an apprenticeship system by you know,
Speaker 1: seeing mistakes, going to trips. How do you handle a client,
Speaker 1: how do you handle the problem. So it's hard to
Speaker 1: inculcate culture and character and all those things. When you
Speaker 1: have the Zoom world spontaneous combustion, it goes away hard
Speaker 1: to manage, you know, it's hard to be very critically
Speaker 1: got fifteen people on the screen. So before it was
Speaker 1: like a deep dive question, now looks a little bit rude.
Speaker 1: And I took a trip to California and met a
Speaker 1: hundred people all outside, all one breakfast, lunch, and dinner.
Speaker 1: It's amazing how much you want about your own business,
Speaker 1: your own bankers, your own clients, your own products. And
Speaker 1: you know, I met with Snowflake and Marcatta. What you
Speaker 1: learn about technology and systems, you're not going to do
Speaker 1: that in the zoom world. And you know, so bankers relationships.
Speaker 1: I think it's very hard to build and develop a
Speaker 1: deeper relationship on the zoom world. So you still, you
Speaker 1: know there'll be more zooming people like me will travel
Speaker 1: just as much as I did in the past. As
Speaker 1: a win, the vaccine does become available, feel workforce, Will
Speaker 1: you make it mand a treat for people to take
Speaker 1: it if they do one of the time. It's hard
Speaker 1: to make it mandatory, and their laws about that. I
Speaker 1: think what we'd like to do is kind of have
Speaker 1: cacharroacts and sticks. We want people to take it. Think
Speaker 1: it's a far better thing. You certainly can't make it
Speaker 1: mandatory before it's fully accessible, so that question can even
Speaker 1: be answered until June UM. But but I do think
Speaker 1: you may see some companies do it. I mean I
Speaker 1: can see an airline doing it, or a hotel company
Speaker 1: doing it. I can see some people saying if the
Speaker 1: folks in our branches aren't vaccinated and not going in
Speaker 1: so there will be pressure. Uh. And I would say
Speaker 1: Charroton sticks not in mandatory, Jamie Diamond, JP Morgan Chairman,
Speaker 1: and see how speaking with Bloomberg's at Hammond, Let's get
Speaker 1: to Abraham rach Bary, City, Global head of Effex Analysis. Abraham,
Speaker 1: let's start with this question, who leads the global cycle? Here?
Speaker 1: Is it the United States with all its stimulus, so
Speaker 1: the prudent approach from China, So we think there is
Speaker 1: clearly a bit of a handover going on where China
Speaker 1: was essential and early in staging the global recovery. But
Speaker 1: right now I think the weight is clearly shifting towards
Speaker 1: the US, and the types of growth numbers that we
Speaker 1: are expecting alongside many others in the US should give
Speaker 1: us some hope that even some slowing of momentum in
Speaker 1: China will allow the global recovery to power ahead pretty
Speaker 1: vigorously on on the back of and on the shoulders
Speaker 1: of the U s. Recup, Abraham, your Edward Moore so wonderful.
Speaker 1: Edward Mores published this morning on oil, reaffirming a range
Speaker 1: bound area, and he's below the eighty dollar hysteria we're
Speaker 1: seeing right now. I get the same temperament from you
Speaker 1: and even killed what you see in the foreign exchange market.
Speaker 1: Does your world now correlate with the rest of the
Speaker 1: markets or is it separate and distinct? So they are
Speaker 1: important linkages between broader markets and the economy and foreign
Speaker 1: exchange markets, but it has effects has also been playing
Speaker 1: to its own two. So we have seen in particular
Speaker 1: dollar trends correlate with the global recovery that all that
Speaker 1: has generally speaking been on the back foot. But of late,
Speaker 1: for instance, we have seen that when US interest rates
Speaker 1: rose quite quickly, the dollar wolves effectively pretty range bound
Speaker 1: in G ten. And that's in part because interest rates
Speaker 1: rose elsewhere in the world almost as much as they
Speaker 1: did in the US, and because we have seen the
Speaker 1: behavior of investors focus more on equity markets and commodity
Speaker 1: markets as a primary expressional. That's called them reflation trades.
Speaker 1: Then in foreign ex aim Abraham if the weight is
Speaker 1: shifting toward the United States and the strength in the
Speaker 1: US has led people to go further into the dollar
Speaker 1: more than perhaps I'm expected at the end of can
Speaker 1: we see the dollar materially weaken from here with the
Speaker 1: US also leading the global economic recovery. Yes, that's a
Speaker 1: very good question and one that we've dealt with intensively,
Speaker 1: and our answer is yes it can, but we need
Speaker 1: two conditions to hold for that to play out. And
Speaker 1: condition number one and most important is we do need
Speaker 1: still a vigorous global recovery. So even if the US
Speaker 1: outperformed but the global economy it does okay, then the
Speaker 1: dollar can sell off, just as it did after the
Speaker 1: previous two global recessions. And the second is we do
Speaker 1: need US real yields and particularly US front end real
Speaker 1: yields to stay pretty low. And for that it is
Speaker 1: important that we see a fairly forceful, dubbish message from
Speaker 1: the Fed on an ongoing basis. Do you expect that
Speaker 1: from Chairman Powell on Thursday? Abraham we afect the pretty
Speaker 1: nuanced message, so I think he will trade a fine
Speaker 1: line where he will reinforce his policy intentions. No consideration
Speaker 1: for tapering anytime soon. No intention to change hiking plans
Speaker 1: based on the recent development, but equally that he will
Speaker 1: continue to endorse the good news and that the good
Speaker 1: news are expressed in in bond deals as well. So
Speaker 1: it's gonna be nuanced. It's not going to be a
Speaker 1: major pushback in our expectation to product the commodity market.
Speaker 1: So let's finish their Abraham and get to the commodity
Speaker 1: currencies in the fex market. At the moment, given what's
Speaker 1: happening in China, how comfortable are you with a conversation
Speaker 1: around another commodity supercycle getting along the commodity currency states
Speaker 1: for that reason over a long time morison. So we
Speaker 1: think that the commodity currencies still have upside, and in
Speaker 1: G ten that's for us, the Australian dollar, the Norwegian
Speaker 1: corona keep dollar, and and and and and and can't
Speaker 1: as well. We wouldn't talk of the supercycle per se,
Speaker 1: but we do think they'll be vigorous demand for all
Speaker 1: kinds of commodities, for oil, on the reopening store, for industrials,
Speaker 1: on restocking and infrastructure. Even with some slowing in in
Speaker 1: Chinese demand, we won't have the supercycle like in the
Speaker 1: two thousand's, but we think that bolts well for a
Speaker 1: further pickup in quality prices after a bit of froth
Speaker 1: comes out in in the last couple of weeks, and
Speaker 1: maybe that has a little bit further Remember I'm amazed
Speaker 1: at how when the euro comes down and comes down,
Speaker 1: granted it's within range. We had a little bit of
Speaker 1: a one nine team print here earlier this morning. What
Speaker 1: is your twelve month call on euro? Is it tradeable
Speaker 1: or is it a mystery m hm. So we still
Speaker 1: have upside in our euro dollar forecast, and we think
Speaker 1: it will pick out nearer to one thirty sometime this year.
Speaker 1: That being said in the short term. That being said,
Speaker 1: in the shorter we think that the euro will lad
Speaker 1: and that's for two reasons. One is because European rates
Speaker 1: have lack and will lack global rates, and two because
Speaker 1: the CD has actually pushed back against the rising rates
Speaker 1: more forcefully than in particular the Fed has. And it's
Speaker 1: a very opportune moment for the e c D because
Speaker 1: it can actually do something. It can buy more bonds,
Speaker 1: So it's a good moment for it to show to
Speaker 1: the market that is not out of ammunition. So we
Speaker 1: think the euro goes lower first, but then higher. It's Abraham,
Speaker 1: great to see, is always good to catch up, Abraham
Speaker 1: rock Barry, their City global head of Effects Analysis. Let's
Speaker 1: bring in David Costa now goalmus Saxis chief US security strategist,
Speaker 1: David Aligned from your research, cyclicals with negative earnings and
Speaker 1: falling sound in have returned year today. Do you stick
Speaker 1: with it? The answer, Jonathan is yes, you have to
Speaker 1: be from a tactical point of view. The companies that
Speaker 1: lost money last year but are actually recovering UH this year.
Speaker 1: That is the benefit of a tail wind from better
Speaker 1: economic activity, the vaccine you just mentioned, fiscal stimulus that
Speaker 1: we anticipate we'll get past relatively soon. All that benefits
Speaker 1: some of the cyclicals. Now that's not to say the
Speaker 1: some of the tech heavy secular growth companies will not
Speaker 1: perform well, but just from a relative near term perspective,
Speaker 1: probably the cyclicals UH will will will lead the market.
Speaker 1: It takes a strike to the mechanics of the benchmark,
Speaker 1: doesn't it. The SMP five hundred, the overweight waiting of
Speaker 1: information technology and growth stalks. David, And if that's why
Speaker 1: you should be, how do you get to forty three
Speaker 1: hundred on a headline index. Well, I think you think
Speaker 1: of it what I think about as a Barbell strategy.
Speaker 1: So of the index SMP five hundred is technology, is
Speaker 1: he just indicated? And so that has certainly got to
Speaker 1: be a core part of the portfolio. You're getting very
Speaker 1: strong revenue growth, uh from the a lot of these companies,
Speaker 1: and you think about it relative to pre pandemic profits,
Speaker 1: pre pandemic sales and profits. The the overall market is
Speaker 1: actually higher than it was at this time last year.
Speaker 1: That's an important statement. The economy nominal and real basis
Speaker 1: is still a little bit smaller, but hills and earnings
Speaker 1: are back to where it was before and back the
Speaker 1: equity market now about fifty and sixtcent higher than it
Speaker 1: was twelve months ago. So looking forward, as you just indicated,
Speaker 1: where's that growth likely to come? Still likely to come
Speaker 1: in aggregate from technology, but tactically likely to be some
Speaker 1: of the re reopening of America. So, my colleagues in
Speaker 1: the equity research we have an index, uh, the Reopening
Speaker 1: of America Index Tom you'll like that title, and basically
Speaker 1: it's at four. It's been stuck at four. So the
Speaker 1: upside is as people get vaccinated. As the economy continues
Speaker 1: to recovery, which is part of our forecast, well, that
Speaker 1: means you're getting more of these companies. Company level data
Speaker 1: will be reopening, and that's where the positive earnings revisions
Speaker 1: is coming from. Last month, last three months, you've had
Speaker 1: ten of the eleven sectors have had positive earnest revisions.
Speaker 1: And that my view with what's leading the market higher.
Speaker 1: Our forecast a D eighty one earnings for this year,
Speaker 1: that's about seven percent higher than consensus. We think there's
Speaker 1: room for upward earnest revisions. That that's what's taking us higher.
Speaker 1: I'm looking for the reopening of America E t F,
Speaker 1: which I'm sure is coming somewhere to a store near you. David.
Speaker 1: I am curious though. Underpinning a lot of the optimism
Speaker 1: in equity performance is this idea that we're going to
Speaker 1: get gangbusters growth in tandem with relatively low benchmark borrowing
Speaker 1: costs for the United States. At what point do higher
Speaker 1: rates pose a problem to your thesis? They say, that's
Speaker 1: a great question. The number one question we get from
Speaker 1: every client, which is about the relationship between rates and equities.
Speaker 1: So I think you want to think about it two ways,
Speaker 1: both level and speed. And level not concerned about that.
Speaker 1: Right now we've had a fifty basis point backup and
Speaker 1: nominal rates led by a backup and really yields as
Speaker 1: you know, and so that still leaves equities under valued
Speaker 1: in the context of very low absolute level of rates.
Speaker 1: So one and round numbers, you can go to two percent,
Speaker 1: two percent and a tenure treasury yield, say multiple today
Speaker 1: at least, so you'd only be back at the long
Speaker 1: term average relative valuation of equities versus bonds. That's if
Speaker 1: you went to two percent, not our forecast, but that
Speaker 1: gives you a sense of the if you will, the
Speaker 1: flexibility or the capacity of rates to continue to go
Speaker 1: higher and equity prices still to be in a good position.
Speaker 1: On the other hand, the speed of the backup is
Speaker 1: something we are a little concerned about. And you saw
Speaker 1: in the last month bind yields go up by a
Speaker 1: very significant amount, more than two standard deviation move. But
Speaker 1: that you know, in context very unusual in terms of
Speaker 1: the swiftness and the magnitude of the backup, and so
Speaker 1: that usually is associated with some headwind to the equity performance.
Speaker 1: And I think that's why duration is the way to
Speaker 1: think about it. You want to have shorter duration equities.
Speaker 1: This goes back to Jonathan's question a minute ago, which
Speaker 1: is how does that cyclicals do better they have shorter
Speaker 1: duration in terms of their cash flows than the on
Speaker 1: the duration technology stocks. I think that's the way to
Speaker 1: approach equities to the lens of fixed income. So I'm
Speaker 1: going to rip up the scripture David Coston and go
Speaker 1: and thank you for the two standard deviation view on
Speaker 1: fixed income. We certainly lived out, including last Thursday. If
Speaker 1: short duration as cyclicals, does that mean Apple and Amazon
Speaker 1: and the rest of them are long duration and to
Speaker 1: be avoided. Well, they're longer duration, is no question about that.
Speaker 1: In terms of expectations and the faster growth, Uh, they
Speaker 1: don't shouldn't be avoided. I would think of it as
Speaker 1: the Barbell strategy. So they're quite part of the portfolio.
Speaker 1: The tech and the tech sector in particular is a
Speaker 1: key driver. The semiconductors are expected to have uh twenty
Speaker 1: eight percent higher level of profits in twenty David. Look
Speaker 1: just because the times, David, I don't mean to interrupt it,
Speaker 1: just because of time. This is so so so important.
Speaker 1: If they have that cash level and we get a
Speaker 1: six percent, seven percent whatever g DP bubble is, it
Speaker 1: just gonna be one big share buy bic like we
Speaker 1: saw from Intel over the decade, we're gonna see we're
Speaker 1: already seen this year. We're two months into the year.
Speaker 1: We've had near record levels of authorizations by boards to
Speaker 1: a proven an authorized share re purchases for this year.
Speaker 1: And so that's a reflection of management looking at their
Speaker 1: business for this year. Better cash flows, more flexibilion and
Speaker 1: how to spend money. That's one use of that cash
Speaker 1: is the is the biobax chairs. That will be a
Speaker 1: supporting mechanism in my opinion. But the biggest source of
Speaker 1: cash is individuals. Tom, You've had about a five hundred
Speaker 1: billion dollar diminution reduction in money market mutual fund assets. Uh.
Speaker 1: You know in the last several months. A lot of
Speaker 1: that money at a zero rates is going into equities,
Speaker 1: and of course a lot of it's going into the
Speaker 1: spack market. You've had a hundred and seventy five SPACs
Speaker 1: this year alone, fifty six billion dollars. We're on pace
Speaker 1: to exceed last year's record level by the end of
Speaker 1: this month. Are you are you gonna do us back
Speaker 1: with you and hot us. Is that what we're looking
Speaker 1: forward to. I'll have to Uh, I have to, I
Speaker 1: have to go ask him about that. They missed the Sullivan.
Speaker 1: I have other ideas. They're going to see it type
Speaker 1: custing government sacks chief US equity strategists. Let's get some
Speaker 1: stability on the American economy, Sarah House where us with
Speaker 1: Wells Fargo and their senior economy since Sarah, I love,
Speaker 1: I mean target just out with comp sales coming in
Speaker 1: higher than all the geniuses saw, looking for a huge
Speaker 1: statistic to come in rounded up. You say we're flushed
Speaker 1: with cash. John just mentioned that with the stimulus, and
Speaker 1: you're gonna migrate from six point two percent higher higher?
Speaker 1: How much up are you gonna lift? I mean you're
Speaker 1: you're framing six to seven percent g d P or
Speaker 1: are we gonna shift from six percent to China like GDP? Well,
Speaker 1: we're looking for a six percent GDP this year. And
Speaker 1: math of pickup really comes second and third quarter led
Speaker 1: by the consumer with all this fiscal stimulus flowing through
Speaker 1: and the excess savings beginning to to get sent I
Speaker 1: think when we look ahead and in terms of where
Speaker 1: the risks that forecast live Potentially they could be to
Speaker 1: the upside, just given again how much excess saving there is,
Speaker 1: and that has the potential to even get spent further
Speaker 1: into and really still propelled growth quite strongly. In two.
Speaker 1: This is more than just a summer reopening story. Well,
Speaker 1: what's so important here is the idea of six and beyond.
Speaker 1: I mean, you are going through those calculations, as is
Speaker 1: every other house right now. Are those calculations out tents
Speaker 1: of a percent or are they out big figures? So
Speaker 1: we're looking at in terms of the overall the spending picture.
Speaker 1: I mean, I think you can see some some pretty
Speaker 1: big figures just when you look at what's what's driving this,
Speaker 1: you know. So we've seen big figures in terms of
Speaker 1: case count declines recently, we're seen in some ways. I
Speaker 1: think the relief package that's working its way through Congress
Speaker 1: now is even bigger than Democrats may be expected they
Speaker 1: would get. And so I think you are still looking
Speaker 1: at some some pretty substantial numbers when we look at
Speaker 1: the outlook for for not just the middle of this
Speaker 1: year but on into the latter end. When you talk
Speaker 1: about spending, it kind of speaks to John's point, who
Speaker 1: leads the next end of the cycle. The idea of
Speaker 1: you know, if we don't have China leading the dynamism
Speaker 1: and global growth, can an infrastructure spending plan in the
Speaker 1: United States, Can more spending to make energy more green
Speaker 1: throughout the world end up supercharging some kind of cycle
Speaker 1: and commodities and global growth that perhaps is not driven
Speaker 1: from China, It can certainly help. I don't know if
Speaker 1: you can get a full another commodity supercycle. I think
Speaker 1: in many ways that the bounce we've seen is driven
Speaker 1: so much by this this pickup in demand. But you know,
Speaker 1: when we look at just what's happening with just you know,
Speaker 1: real supposable income in the household sector, and even when
Speaker 1: you layer on top of that a possible infrastructure deal,
Speaker 1: you know, these are are are one time boost. And
Speaker 1: so you whether we're we're going to continue to see
Speaker 1: that that pick up and spending I think is a
Speaker 1: harder question. And so that could could could impede really
Speaker 1: the durability of that commodities commodities boost. But I mean,
Speaker 1: right now it's certainly filtering through into some of the
Speaker 1: inflation numbers and pointing to a sharp pick up there. Okay,
Speaker 1: so a one time boost. Let's say that the infrastructure
Speaker 1: spending or the fiscal stimulus that we get pasted in
Speaker 1: March on March fifteen, as the Democrats expect, is a
Speaker 1: one time affair. Does that lead to longer, longer term
Speaker 1: inflation that's higher than people are currently pricing in So
Speaker 1: I think we will see inflation settle at a notably
Speaker 1: faster pace than what we saw over over the last cycle.
Speaker 1: So we'll get a pop here in the second quarter,
Speaker 1: But when we look out further, we're looking for core
Speaker 1: pc inflation to run at all over two percents, maybe
Speaker 1: roughly roughly two and a quarter over over the next
Speaker 1: year and and a half or so. So I think
Speaker 1: that is a meaningful lift, particularly when you just think
Speaker 1: of how much the Fed has struggled with inflation over
Speaker 1: over the past decade. But it remains me seen if
Speaker 1: it if it stays persistently high, and I think to
Speaker 1: look at that, you're going to need to focus heavily
Speaker 1: on inflation expectations. So does this become self reinforcing? Have
Speaker 1: you actually broken that mentality of low inflation that has
Speaker 1: been so pervasive over the past decade where businesses feel
Speaker 1: like they can actually price higher past higher costs on
Speaker 1: two consumers. Prices paid. I'm talking about the I s
Speaker 1: M in the last Sarah, and it was phenomenal. A
Speaker 1: sixty handle on manufacturing, that's what we want to say.
Speaker 1: Then you get into prices paid, and this has been
Speaker 1: a trend for a while now. People were looking for
Speaker 1: eight we've got eight T six. Can you just frame
Speaker 1: that for us, how important that is and what explains it? Well,
Speaker 1: I think it's it's hugely important, especially when you consider
Speaker 1: that last time it was that high, I was back
Speaker 1: in two thousand eight when you did have a big
Speaker 1: up chicken in commodities, but at the same time demand
Speaker 1: was absolutely taking Here this is a very different scenario,
Speaker 1: so you actually have demand ramping up markedly, and so
Speaker 1: it does suggest that again we are perhaps shifting into
Speaker 1: a higher inflation environment. Now. Of course, most of that
Speaker 1: comes on the good side when we look at inflation
Speaker 1: in its entirety. You know, goods only account for roughly
Speaker 1: a third of of consumer spending, so we need to
Speaker 1: keep a close eye on what's happening in services. But
Speaker 1: basically we've taken away a major source of disinflationary pressure
Speaker 1: over the past decade, and we're that was really evident
Speaker 1: in yesterday's I s M Prices paid components. So Seba
Speaker 1: for you, this is a demand story. It's not a
Speaker 1: supply side story, supply constraints all those kind of things.
Speaker 1: It's actually both. So I think immediately we are seeing
Speaker 1: we're certainly still seeing some supply constraints. I mean, you
Speaker 1: you mentioned the prices paid index, but look at what
Speaker 1: happened with the supplier to livery so that remains elevated,
Speaker 1: not quite as high as what we saw in in
Speaker 1: the midst of the lockdowns, but still substantially elevated. As
Speaker 1: we have issues with transportation networks, issues with manufacturers getting
Speaker 1: their their staff in with COVID and keeping those assembly
Speaker 1: lines running to the to the full extent, and so
Speaker 1: it's a little bit of both. So we expect those
Speaker 1: supply disruptions to ease um at least when it comes
Speaker 1: to some of the labor challenges over over the year.
Speaker 1: But but I think you're still going to have some
Speaker 1: bottlenecks just given how strong the goods and orders picture
Speaker 1: have been um over in recent months, It's going to
Speaker 1: take some time for those backlogs to get filled. Sara,
Speaker 1: not to what numbers in your mouth, But if we
Speaker 1: move from six point two percent to seven or dare
Speaker 1: I say ninety days of eight percent g d P,
Speaker 1: how does that change the eye part of the equation.
Speaker 1: Do you guys have any understanding coast to coast of
Speaker 1: how corporations will invest in this boom or do they
Speaker 1: just do what they've always done, which is buy back chairs. Well,
Speaker 1: I think it's certainly supportive for the investment environment. When
Speaker 1: again you talk about some of these supply constraints, um
Speaker 1: not just from the staff. Do you see evidence of it?
Speaker 1: Is there evidence that they will invest? Well, we've already
Speaker 1: seen very strong in investment and it's maintained stronger. So
Speaker 1: instead of hitting you know, perhaps an air pocket as
Speaker 1: you had investment pulled forward for things like information processing equipment,
Speaker 1: it's remained incredibly strong. We saw it with a durable
Speaker 1: goods report last week, the core shipments of three and
Speaker 1: a half percent, and so it seems like you are
Speaker 1: getting continued momentum where businesses are arising to meet that
Speaker 1: challenge and meet that demand and that support of investment.
Speaker 1: This isn't just necessarily going to be the consumer propelling
Speaker 1: growth war in the year. Ad It's just been fantastic
Speaker 1: in the last particularly, thank you very much the A
Speaker 1: House Welst Fargo security economist. He needs a cup of
Speaker 1: coffee because what we do is we talked to pros
Speaker 1: in the horrific pandemic who are doing and not talking.
Speaker 1: I'm str Dolga has spent the evening and I see
Speaker 1: you at his hospital and he joins us. Now after
Speaker 1: a long shift. How is I see you different, Dr
Speaker 1: Adulgon now versus ten months ago? It's right now. It's
Speaker 1: about the lowest that I've seen with COVID in several months.
Speaker 1: I think ten months ago we were looking at um.
Speaker 1: It was actually the middle of kind of the of
Speaker 1: the summer, the summer surge. Around that time, we're starting
Speaker 1: to see the spring surgeon kind of a lot more patients,
Speaker 1: a lot more nursing home patients getting infected, a lot
Speaker 1: of them showing up in in in the i c
Speaker 1: u s. Right now, I would say there was only
Speaker 1: one coronavirus patient in an I see you, which is
Speaker 1: a is a good change. I think the high of
Speaker 1: it here. I clinically work in Pittsburgh, although I have
Speaker 1: a Hopkins affiliation was around the wintertime when it was
Speaker 1: really inundated. Uh that during that winter surge, and that
Speaker 1: seems to have dissipated. And I think that's evidence that
Speaker 1: our vaccine is getting to those vulnerable populations and they're
Speaker 1: getting protected. And we've seen it in the national data
Speaker 1: when you look at nursing home deaths, nursing home cases,
Speaker 1: and I think that's going to give our hospitals a
Speaker 1: lot of rest. But in terms of capacity concern, which
Speaker 1: gives governor's possibility the nursing home success is the eighty
Speaker 1: year old cohort, maybe the seventy year old cohort. How
Speaker 1: what is your timeline to get down to the sixty
Speaker 1: year old and to begin to benefit those forty nine
Speaker 1: and older. It's likely it's going to be different depending
Speaker 1: upon the states. So there are some states that are
Speaker 1: already moving into high risk individuals that are less than
Speaker 1: the age of sixty five. In my state of Pennsylvania,
Speaker 1: they haven't done that yet. They're still really sticking to
Speaker 1: the six and up cohort. So it's gonna take some time.
Speaker 1: It all depends on vaccine supply. The Johnson and Johnson
Speaker 1: approval is going to help, But in the short term,
Speaker 1: we're only getting about four million doses, so it's going
Speaker 1: to take some time to trickle out. But we are
Speaker 1: getting better, we are moving faster. So I do think
Speaker 1: that that as we get into spring mid spring, we
Speaker 1: will have most of our people that are at high
Speaker 1: risk that live in the community aaccinated or have access
Speaker 1: to the vaccine. And I think even before we cross
Speaker 1: that HERD immunity threshold will be in a very different
Speaker 1: place because we won't be worrying about hospital capacity or
Speaker 1: personal protective equipment or ventilators or any of that anymore.
Speaker 1: And I think that's really what drove a lot of
Speaker 1: the public health intervention, because we were always worried about
Speaker 1: the about keeping the curve below hospital capacity dr A delta.
Speaker 1: How concerned are you about the New York variant are I?
Speaker 1: It's hard to know exactly how to be concerned about
Speaker 1: all of these variants. There are many of them that
Speaker 1: are kind of floating around, and there's many that we
Speaker 1: don't even have characterizts because we don't do much sequencing.
Speaker 1: I think the New York variant is something kind of
Speaker 1: in the intermediate range that we worry about it being
Speaker 1: more contagious our vaccines are likely to still prevent what
Speaker 1: matters when it comes to these these variants or any
Speaker 1: of the original version of the virus serious disease, hospitalization,
Speaker 1: and death. So I think the existence of these various
Speaker 1: just underscores the need to accelerate vaccination to the fastest
Speaker 1: pace possible. Are we winning the race. I think we're
Speaker 1: We're kind of keeping pace with it. But we'll see
Speaker 1: what happens to the overall number of cases right now.
Speaker 1: They have in the last ten days or so, there's
Speaker 1: been an increase of a couple percent. We don't know
Speaker 1: if that's actually a trend or if that's an aberration
Speaker 1: in the data. But as long as our cases are
Speaker 1: flatter going down, I think we're at least at least
Speaker 1: treading water and nothing and nothing serious is going to
Speaker 1: It's not gonna undercut that. But if we just go
Speaker 1: up again, if we see, for example, the UK variant
Speaker 1: continue to increase, then I think we really need to
Speaker 1: step on the gas when it comes to vaccination. And
Speaker 1: I think we're getting better. Over two million is getting better.
Speaker 1: I think there should be no speed limit. However, when
Speaker 1: we're talking about vaccines, is a trend and better data
Speaker 1: on hospitalizations and deaths linked somehow to quarantine or do
Speaker 1: you just simply have to wait way down the road
Speaker 1: to begin to EBB quarantines country to country. I think
Speaker 1: you're gonna have to do a lot to disentangle what
Speaker 1: goes on. And we know that social interaction spreads the virus,
Speaker 1: or the less social interaction you have, the less likely
Speaker 1: you are to have cases. But what does each added
Speaker 1: step do? That takes a while to control for, because
Speaker 1: people will voluntarily start to quarantine, people start wearing face
Speaker 1: coverings at the same time, people start to wash their hands.
Speaker 1: A lot, mass gatherings get get canceled. All of that
Speaker 1: has a role. So you have to kind of piece
Speaker 1: apart things and try and control for all the different
Speaker 1: variables that were happening happening at the same time to
Speaker 1: know exactly what each public health intervention has and it's
Speaker 1: a hard job to know exactly what worked. Dr Dolgia.
Speaker 1: How much of a stumbling block is it the children
Speaker 1: cannot get vaccinated and probably won't be able to get
Speaker 1: vaccinated until potentially early next year. I don't think it's
Speaker 1: really assembling block. If you look at the epidemiology we
Speaker 1: know that children are usually and greatly spared from the
Speaker 1: severe consequence of disease. There there are some exceptions, but
Speaker 1: in general they're not Some they're not at high risk,
Speaker 1: and they're not accelerators of the of the virus in
Speaker 1: the community. So with influenza, they really drive a community
Speaker 1: transmission of influenza. They don't do this with coronavirus. So
Speaker 1: what we were trying to do with the vaccine is
Speaker 1: reduced the harm that the virus was causing, and that
Speaker 1: men going after the vulnerable populations first. So I don't
Speaker 1: think it's an obstacle. And remember there's a different risk
Speaker 1: benefit calculation when you're talking about vaccineing a nine year
Speaker 1: old versus a nine year old, and you have to
Speaker 1: really think, you know, is the vaccine but this vaccine?
Speaker 1: Are these current vaccines the best vaccine for his child
Speaker 1: or will it be some second generation vaccine down the
Speaker 1: road that might have a less less of a side
Speaker 1: effect profile. So I think we need to do the studies.
Speaker 1: I think children will get vaccinating, but I don't think
Speaker 1: it's an obstacle to anything right now, do I know
Speaker 1: you're at the end of you arrive and night shift,
Speaker 1: So we'll let you run. Thank you Hot Works. We
Speaker 1: appreciate it. Thank you. I miss it down to that
Speaker 1: of Jon's health kids. This is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening. Join us live weekdays from seven to
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Speaker 1: Keene and this is Bloomberg