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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily

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Speaker 1: we bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot com, and of course on the Bloomberg. There

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Speaker 1: are two kinds of technical analysis, which by the way,

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Speaker 1: really works on Bloomberg Radio and we said good morning

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Speaker 1: to all of you. One of them is stochastic, which

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Speaker 1: is the movement the spikes trying to catch the knife

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Speaker 1: in the dark, and the other is trend based analysis.

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Speaker 1: Anybody that knows my work over the years knows I

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Speaker 1: am totally and completely in the trend based camp, as

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Speaker 1: is Christopher Verrou and the fabulous technical analysts. It's trtiguous. Chris,

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Speaker 1: it was great to hear your children in the background

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Speaker 1: before they were sequestioned before we came on. What is

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Speaker 1: it like naming your young children's support and resistance? Did

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Speaker 1: that go over well with Mrs vone? You know, it

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Speaker 1: didn't go over as well as you might think. Support

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Speaker 1: and resistance is the trend right now? What is the

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Speaker 1: equity market trend? Now? Are we breaking out of resistance

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Speaker 1: to new higher levels? Yeah, and I think that's clear.

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Speaker 1: But what I think is less clear and arguably more important,

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Speaker 1: is under the surface. We continue to see signs that

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Speaker 1: participations actually getting broader. Here as you see it with

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Speaker 1: just over the last month of the reinvolvement of industrial

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Speaker 1: is the improvement in discretionary I mean, these are groups

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Speaker 1: that have largely been relative laggard for the past two

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Speaker 1: and a half years that are starting to showcase sometimes

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Speaker 1: some type of relative strength. That is welcome, and I

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Speaker 1: think it reflects a broadening of leadership and that's certainly

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Speaker 1: something I think most participants have been creating. This word relative, folks,

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Speaker 1: is absolutely foundational trend based analysis, and I want to

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Speaker 1: go to the relativeness Christopher roone of those eight stocks

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Speaker 1: that are going up, we know who they are, the

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Speaker 1: digital dominance and everything else. For everything else to improve

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Speaker 1: and go up, do they do it on an absolute

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Speaker 1: basis or do they simply have to do it relative

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Speaker 1: to a stable or even advancing tech group. I think

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Speaker 1: they have to do on a relative basis. And what

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Speaker 1: I'm occouraged by is that it's actually happening. I'll give

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Speaker 1: you a couple of examples. When you look at like

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Speaker 1: transportation group. For example, we look at transport relative to

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Speaker 1: utility is as a barometer for cyclicality. It transports of

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Speaker 1: underperformed utilities for the better part of the last two

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Speaker 1: and a half years. That has decisively changed over the

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Speaker 1: last eight to twelve weeks. We see with the broader

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Speaker 1: industrial sector. Yesterday consumer discretionary flipped to positive in our

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Speaker 1: relative trend model. So all the things you'd want to

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Speaker 1: see that would support the idea that participation, particularly in

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Speaker 1: relative terms, as you talk about, I think it's important

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Speaker 1: all the things you'd want to see in that front

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Speaker 1: are happening. I'm surprised to hear you say this because

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Speaker 1: we hear from Morgan Stanley's uh. We hear from their

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Speaker 1: chief equity strategist that he thinks that we're going to

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Speaker 1: see a potential sell off if we get an ongoing

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Speaker 1: optimism in the economy. The idea of Mike Wilson coming

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Speaker 1: out and saying that because of how narrow the leadership

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Speaker 1: has been, it makes this rally fragile. What are you

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Speaker 1: seeing that he's not well. I think what's most important,

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Speaker 1: and this has been the focus of our work over

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Speaker 1: the last number of weeks, is that the leadership tone

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Speaker 1: of the equity market, we think is telling us, is

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Speaker 1: screaming at us that you should expect a positive economic

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Speaker 1: surprise in the back half of the year. We just

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Speaker 1: can't think of any other reason why things like industrials

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Speaker 1: and discretionary and materials and transports would be acting as

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Speaker 1: well as they are here. And frankly, that's pretty consistent

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Speaker 1: with what you would expect to see in the first

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Speaker 1: several months of a new economic cycle. So I think

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Speaker 1: the market is telling us the consensus is probably still

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Speaker 1: is still too pessimistic about the trajectory of the economy

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Speaker 1: from here. Although Chris, I wonder about fundamental analysis at

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Speaker 1: a time when best By this morning was the latest

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Speaker 1: company to to draw any prediction for how their business

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Speaker 1: would do for the rest of this year, how accurate

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Speaker 1: can traders be in this equity market at a time

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Speaker 1: of such limited visibility? Well, I would just positive. Is

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Speaker 1: this really any different from any other moment in history?

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Speaker 1: And it's easy to say yes, but I would argue

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Speaker 1: that it's not. And by that I mean, go look

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Speaker 1: five six months off any major market loan history. You're

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Speaker 1: not gonna like where the economy was. You're not gonna

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Speaker 1: like the visibility that was in front of you. That's

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Speaker 1: the game we played. That's investing um so. I I

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Speaker 1: don't think this is as unique as the consensus wants

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Speaker 1: it to be. I think what you've seen historically is

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Speaker 1: markets discount future improvement. I don't think the markets describing

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Speaker 1: the economy today. I think the markets describing the economy

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Speaker 1: that's in front of us, and I think it's stronger

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Speaker 1: than what the consensus expects. Okay, Chrispherhon, I looked at

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Speaker 1: the SPX and I used a fancy moving average study.

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Speaker 1: This is three moving averages. Good morning, George Kleinman out

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Speaker 1: of Nevada, if you're watching, christopherone. I looked at the

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Speaker 1: trend base and it's extremely well behaved, extremely well contained.

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Speaker 1: Can you extrample to a target? And if so, how

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Speaker 1: far out can you go? With enthusiasm? So the only

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Speaker 1: targets we care about are higher or lower, and that

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Speaker 1: means it's the trend up or is the trend down.

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Speaker 1: I think the trend is up here, and that tells

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Speaker 1: us Tom what rules were playing by. And when trends

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Speaker 1: are positive, you buy weakness. You know, it's been five

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Speaker 1: or six months since we've had anything more than a

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Speaker 1: five or six percent drawn out. Is it reasonable that

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Speaker 1: we may get something like that over the next several months.

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Speaker 1: Of course it is. But how do we want to

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Speaker 1: treat weakness? We want to be buyers of weakness when

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Speaker 1: participation expanding and when trend is up. And I think

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Speaker 1: that's build a base case here, which sector is the

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Speaker 1: best value the rest relative value? I mean, I want

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Speaker 1: to buy the dip in Amazon. Maybe it happens, maybe

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Speaker 1: it doesn't. The banks are unloved, which is the Christopher

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Speaker 1: On sector where you get to pop off everything else.

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Speaker 1: I think industrials are emerging as multi year leaders here.

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Speaker 1: They've frankly have been in purgatory for the better part

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Speaker 1: of the last half a decade. I think that's changed

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Speaker 1: in a meaningful way. I would encourage everyone to look

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Speaker 1: at an equally weighted industrial sector relative to the SMP

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Speaker 1: you just broke out from a five year base. This

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Speaker 1: is the real deal. This is the start of meetingful

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Speaker 1: leadership in that group. Let's say yields rise, at what

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Speaker 1: level do they have to rise to that that could

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Speaker 1: potentially disrupt your theory and you could see a sell

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Speaker 1: off in stocks. Well, I think what's interesting is this

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Speaker 1: is the point in a new economic cycle where you

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Speaker 1: would actually expect to see yields start to rise. I

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Speaker 1: think the fact that they haven't is in many respects

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Speaker 1: adding more fuel to this cyclical bias that has started

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Speaker 1: to emerge. Um. In many respects, you know, go back

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Speaker 1: to let's call it mid two eighteen, late two thousand eighteen,

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Speaker 1: bond yields for three percent, cyclicality was starting to peak. Um,

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Speaker 1: Chinese stocks are rolling over Chinese bond yields were rolling

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Speaker 1: over all. The exact opposite trends are playing out right now.

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Speaker 1: So I think the runway before you could say yields

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Speaker 1: are a big problem to disrupting the story. I don't

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Speaker 1: know whether that ninety bases points, the Hunter basis point,

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Speaker 1: a hundred and ten basis points, but I think it's

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Speaker 1: higher than where it is right now. Very good, Christopher on,

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Speaker 1: Thank you so much. I just gotta Saint Lisa. There's

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Speaker 1: so few people that work the circuit constructively like Regina Mayor.

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Speaker 1: She owns for the World Economic Forum at Davos right

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Speaker 1: on down to every other energy conference. She absolutely owns

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Speaker 1: the high ground on this. But Lisa, there's something more

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Speaker 1: important to talk to you right now, and that is

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Speaker 1: there miserable and irving Texas this morning. Yeah, so they're

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Speaker 1: watching the storm, they're watching Laura bear down on them,

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Speaker 1: which is threatening a whole host of oil reserves. And

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Speaker 1: let's start their Regina. The idea that you've got these

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Speaker 1: twin storms, with Marco actually fizzling out, but Laura still

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Speaker 1: looking like a hurricane headed toward the Gulf coast. How

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Speaker 1: much could this disrupt oil production the US. Well, it's

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Speaker 1: not less of a risk on the supply side with

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Speaker 1: oil production because only about ten percent of US production

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Speaker 1: comes out of the Gulf of Mexico, and we're sitting

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Speaker 1: quite pretty with regard to crude supply. The thing to

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Speaker 1: keep an eye on is refined product supply destruction because

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Speaker 1: of the US refine capacity comes from the Texas and

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Speaker 1: Louisiana Gulf coast. So, based on the current projection with

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Speaker 1: hurricane or tropical storm Laura projected to become a Category

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Speaker 1: three hurricane, you could say roughly of gasoline capacity is

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Speaker 1: in the path. I'm less worried about that though, because

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Speaker 1: I don't think it'll take that capacity offline. Um, But

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Speaker 1: but there is at risk and meanwhile over in Irving,

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Speaker 1: there's another storm, and that is the storm against hydrocarbons,

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Speaker 1: with the energy moving away from that area Exxon and

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Speaker 1: being removed from the TAO, the longest serving member of

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Speaker 1: the index, after its market share fell from four hundred

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Speaker 1: and fifty billion dollars of market capitalization back to less

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Speaker 1: than two hundred billion dollars. Now, are we just seeing

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Speaker 1: the beginning of the destruction of the hydrocarbon complex or

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Speaker 1: is this the end of the destruction? Well, it is.

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Speaker 1: It does mark a shift in the era of where

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Speaker 1: capital wants to go and what investors are going to

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Speaker 1: look at. Are the text box are clearly on a boom.

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Speaker 1: You know, I wish I had made some different choices,

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Speaker 1: you know, early in the pandemic. But it does indicate

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Speaker 1: that the large industrial you know, the behemoths of our time,

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Speaker 1: are probably not where capital wants to flow. And it

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Speaker 1: does mean that these very large international oil companies have

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Speaker 1: to pivot their portfolios to embrace what's known as the

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Speaker 1: energy transition if they're going to stay relevant. And you

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Speaker 1: see the different players taking different strategies, and I do

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Speaker 1: think they will pivot and survive. But this does indicate

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Speaker 1: a big shift in investor sentiment. Regina, what's so hard

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Speaker 1: of the matter here is combination. I mean we saw

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Speaker 1: Anna Darko takeout and what Ox he's done in their

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Speaker 1: over extension and Mr Buffet coming into play as well.

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Speaker 1: Do you just see an industry roll up to get

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Speaker 1: back to the size of revenues where they have scale

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Speaker 1: to profit. Well, I think it is a scale game,

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Speaker 1: and you're absolutely right there. But you know, the bid

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Speaker 1: ask spreads are still so far apart and where I

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Speaker 1: would have thought we would have seen more of a

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Speaker 1: wave of mergers and acquisitions. Balance sheets are under such

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Speaker 1: pressure that it's difficult to get the capital to make

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Speaker 1: a play um and it's difficult to see the consolidation

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Speaker 1: that we need to see. However, you know there have

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Speaker 1: been some moves, and there was Chevron's acquisition of Noble

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Speaker 1: looks very very smart in this environment. Well, man, I

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Speaker 1: was going to go to chevn but I really don't

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Speaker 1: want to talk individual securities. I mean, they go after

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Speaker 1: Noble and they got pushed out of Anna Darker. I

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Speaker 1: get all that. Does the big money come into his

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Speaker 1: private equity come in and start acquiring value priced hydrocarbons?

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Speaker 1: Do you see someone like black Stone, or even black

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Speaker 1: Rock for that matter, playing. I think the pe firms

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Speaker 1: have have done their bit in the last decade, especially

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Speaker 1: in the two thousand, in the two thousand tens, and

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Speaker 1: most of them are actually trying pull out. Now, what

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Speaker 1: I think will end up seeing is you'll see assets

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Speaker 1: change hands because the assets still have underlying value, but

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Speaker 1: the companies that are structured around them, with the debt

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Speaker 1: and the equity portfolios that they have, look less attractive.

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Speaker 1: So I think we're gonna have to see more restructuring,

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Speaker 1: more debt consolidation, and then you'll see the assets shift,

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Speaker 1: but maybe less the company logos shifting. Have we already

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Speaker 1: seen Regina peak oil demand. I don't think so, Lisa.

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Speaker 1: There has been some that will say two thousand nineteen

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Speaker 1: might have been peak demand. We still see projections that

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Speaker 1: will take us up to a ten million barrels per day,

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Speaker 1: which is still ten million barrels per day more than

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Speaker 1: we consume uh in, and you'll still see that into

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Speaker 1: the timeframe. We don't have a base of energy that

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Speaker 1: will sustain all of our needs that does not include

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Speaker 1: some element of hydrocarbon, at least in the foreseeable future.

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Speaker 1: Do you think the pandemic has accelerated the iift away

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Speaker 1: from hydrocarbons or do you think that it's actually slowed

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Speaker 1: it because of the subduing of the price of oil.

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Speaker 1: I think it's accelerated the shift. We've demonstrated. You know

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Speaker 1: what we can do for the environment and how we

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Speaker 1: can reduce carbon simply by restricting our movements and not

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Speaker 1: flying as much as we were from a business travel perspective,

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Speaker 1: not commuting as much as we were, not going to

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Speaker 1: different shopping centers. That doesn't directly translate into a reduction

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Speaker 1: of gasoline demand, but we've seen the positive impacts we

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Speaker 1: can have on the carbon and most of the other countries,

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Speaker 1: when you look at their stimulus packages, they include green stimulus.

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Speaker 1: Notably absent. The US isn't focusing as much on green stimulus,

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Speaker 1: meaning you know, new energy types of transitions. But globally,

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Speaker 1: I believe the pandemic has accelerated the move toward the

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Speaker 1: energy transition. Regina, Thank you so much, Regina Mayor. Where

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Speaker 1: there's the KPMG on this historic day, Exxon out of

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Speaker 1: the Dow Jones industrial average right now and it is

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Speaker 1: a great joy to speak to Terence Haynes. He's a

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Speaker 1: Pengia policy writing a really grounded business centric policy note

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Speaker 1: out of Washington, and he really sums it up nicely.

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Speaker 1: Stuck doing just war duty, I say, out in western Maryland, folks,

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Speaker 1: this is not Baltimore, Baltimore and Baltimore. If you go

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Speaker 1: out west of Maryland, pass Hagerstown, it is some of

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Speaker 1: the most gorgeous country in this nation. And Mr Haynes

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Speaker 1: joins us from western Maryland this morning. Terry. The distance

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Speaker 1: from Hagerstown to Baltimore, from Cumberland to Baltimore is the

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Speaker 1: space between the Republican and the Democratic Party. How how

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Speaker 1: does Mr Trump stretch that space? How does he get

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Speaker 1: east of Hagerstown more towards the suburb voters that he needs.

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Speaker 1: I think two ways, Tom one he and you're absolutely

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Speaker 1: right about the chasm between Hagerstown and Baltimore. Um, the

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Speaker 1: is it? In two ways? One? Uh? He? He excites

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Speaker 1: his base. He tells a story. And you know, one

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Speaker 1: of the great things about conventions is that they're they're

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Speaker 1: rare opportunities for a candidate and a party to tell

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Speaker 1: an unfiltered story. And that's what, of course the Democrats

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Speaker 1: did last week. But the Republicans are doing this week. Um,

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Speaker 1: he reminds people of kind of of of accomplishments, he

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Speaker 1: contextualizes that. But then that's the positive message, and then

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Speaker 1: the negative message is, of course, he differentiates very strongly

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Speaker 1: from from what Democrats, Uh, the Democrats might prefer, and

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Speaker 1: to to reach beyond the base and get the independence

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Speaker 1: is actually an opportunity for Trump right now. There was

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Speaker 1: a recent recent poll that was highlighted by the Axios

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Speaker 1: site that showed that only Independence had a positive view

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Speaker 1: of Biden. So that's, uh, that's fertile ground for Trump

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Speaker 1: to really start hammering in that the economy is at stake,

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Speaker 1: that the law and order is at stake, those sorts

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Speaker 1: of things, and you appeal to people's most basic instincts

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Speaker 1: and hopes and fears, and you know, you tell that

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Speaker 1: story fairly free of new ones, and you know you

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Speaker 1: can get there within this unique two thousand twenty. How

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Speaker 1: is his law in order message different from Richard Nixon

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Speaker 1: a lifetime ago? It is? But yeah, frankly it's broadly similar. Uh,

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Speaker 1: and you know, and it and it appealed to the

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Speaker 1: most likely voters. And this is a this is this

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Speaker 1: is an election that's already substantially tightened. I mean, this

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Speaker 1: whole idea that Biden is running away with anything is

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Speaker 1: uh last month's news you've got. You know, people like

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Speaker 1: to talk about real player of politics. Average. The national

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Speaker 1: average for Biden now is about seven and a half

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Speaker 1: and in the battleground states, uh, it is about four.

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Speaker 1: One way to look at that is it's barely above

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Speaker 1: the margin of error or two months away from the election. Uh.

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Speaker 1: So you know, he can hammer on that and uh

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Speaker 1: and appeal to people's feel to people's pocketbooks and their

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Speaker 1: fit and their most basic desires and fears about security. Um,

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Speaker 1: and he can continue to to to eat into what

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Speaker 1: remains of a Biden lead. You know, it was interesting

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Speaker 1: to me when I was looking at your notes, Terry,

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Speaker 1: that you think that President Trump has a sixty percent

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Speaker 1: chance of re election. That does not seem to be

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Speaker 1: the consensus. How much pushback do you get that? Oh?

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Speaker 1: I get pushback about that all the time. Lisa, and

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Speaker 1: I would say two things one three things, but one

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Speaker 1: of which I've already said, the race is already tightening,

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Speaker 1: kind of moving in that direction. Secondly, the last thing

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Speaker 1: that polls are aren't predictive and any any polster would

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Speaker 1: tell you that. Thirdly, these polls look at the wrong things. Frankly,

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Speaker 1: no disrespect anybody that's doing them, but they're looking at

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Speaker 1: the by and large national the national snapshots of registered voters.

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Speaker 1: What you will then, and they're already tightening, and what

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Speaker 1: you'll start to see is more attention page to state

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Speaker 1: by state races of likely voters, and there's a huge

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Speaker 1: disparity between registers and the likeliest. That will mean that

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Speaker 1: the race tightens even further. The Trump wins, uh, you know,

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Speaker 1: and you know turnout here is going to make all

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Speaker 1: the difference. And frankly, you know Trump counts an enthusiasm advantage,

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Speaker 1: but that enthusiasm advantages is real and uh, and it's

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Speaker 1: gonna be hard for Democrats to make that up. Well,

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Speaker 1: when you talk about who's going to win the Democrat

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Speaker 1: the the presidential race, it's unclear what the market effect

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Speaker 1: will be. It is clear that if there is an

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Speaker 1: increase intentions between the US and China, that is broadly

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Speaker 1: viewed as a market negative. What is President Trump's policy

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Speaker 1: that we may hear from Secretary State Mike Compeo tonight,

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Speaker 1: especially given the easing and some of the tensions of

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Speaker 1: late between the US and China. Uh. Let me say

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Speaker 1: two things about that. One, what Pompeo is likely to

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Speaker 1: say is, uh, look, you know, only you know, we

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Speaker 1: wasted two decades on hoping China would would grow up

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Speaker 1: and become a mature member of the Community of Nations

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Speaker 1: and you know, and take the w t O obligations

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Speaker 1: and others. Seriously, We're clearly past that. And you know,

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Speaker 1: but only Trump could stood up to that. Obama and

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Speaker 1: Biden were responsible for a decade of that that sort

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Speaker 1: of thing. Um. The other thing I would say is

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Speaker 1: that markets, I think markets, uh the mids to some

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Speaker 1: extent that they tend to think that one bad thing

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Speaker 1: is happening with between the United States and China, that

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Speaker 1: means that all bad things are are increased. I don't

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Speaker 1: think that's true. It remains in the mutual interests of

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Speaker 1: the U. S and China to continue to trade and

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Speaker 1: continue to say positive things about Phase one even as

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Speaker 1: tensions are on the rise between the two nations and

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Speaker 1: other geo political matters. Uh. It was the former British

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Speaker 1: Prime Minister that noted that the you know, great nations

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Speaker 1: have only interests, not friends. It remains in the mutual

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Speaker 1: interests of these two countries to trade. They'll continue to

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Speaker 1: do that, and they'll continue to say positive things about

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Speaker 1: Phase one, which I think is a market But Terry Hynes,

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Speaker 1: thank you so much. What we thought we'd do right now.

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Speaker 1: Usually you know, it's economic data eight thirty and all

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Speaker 1: that is. They have the definitive conversation of the day

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Speaker 1: on what we're gonna hear from Chairman Paul. We can

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Speaker 1: do that with James Sweeney. He is at Credit sweezy.

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Speaker 1: He has been there all of twenty years, which UH

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Speaker 1: shocksby as well. But James Sweeney has absolutely turned cautious here.

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Speaker 1: I was stunned in his last visit with us how

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Speaker 1: cautious he was on the American economic experiment. And we

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Speaker 1: get a brief on what Mr Powell needs to do

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Speaker 1: James Sweeney. This is always an important speech that's widely understood.

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Speaker 1: Inflation will be the topic. How does the Central Bank

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Speaker 1: manufacture inflation? Well, I mean they know that they need

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Speaker 1: to continue to supply stimulus to the economy and they've

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Speaker 1: been moving towards this Framework review, which is likely to

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Speaker 1: to signal a tolerance for overshooting inflation. Meaning you know,

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Speaker 1: somewhere north of two inflation would not trigger immediate interest

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Speaker 1: rate responses from the Fed, sometimes several years in the future.

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Speaker 1: So that's really what we expect from them today. In general, though,

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Speaker 1: the short term caution is about the lack of a

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Speaker 1: stimulus bill, persistent high unemployment, risks of of inflation staying

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Speaker 1: lower for longer, and I think the FED is very

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Speaker 1: focused on all of these risks, and I think some

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Speaker 1: people in financial markets are not. But we will see

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Speaker 1: as we go through what's set to be a pretty

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Speaker 1: turbulent autumn, whether you know, market and economic data could

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Speaker 1: trigger more than just talk from the FED more action.

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Speaker 1: I give immense credit folks Olivier Blanchard as tour of

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Speaker 1: duty at the i m F now at the Peterson

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Speaker 1: Institute for jump starting this discussion. But change what the

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Speaker 1: magnitude difference here is different. Olivia Blanchard created a firestorm

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Speaker 1: of controversy talking about a goosing of three and even

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Speaker 1: four percent inflation. I'm not hearing that from the Fed.

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Speaker 1: What are they talking about nudging it up to two

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Speaker 1: point oh five or two point one percent inflation? Yeah,

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Speaker 1: I think it's in the tens of basis points that

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Speaker 1: they would tolerate. I don't think we're talking about three

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Speaker 1: core inflation or anything like that. And I mean, the

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Speaker 1: difference between headline and core is important because energy prices

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Speaker 1: can throw the headline inflation numbers around a lot. But

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Speaker 1: I don't think that we're going to see three percent

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Speaker 1: core inflation with you know, the set short rate that

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Speaker 1: had close to zero um anytime in the future. But

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Speaker 1: but what they're saying is that immediately drifting above two

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Speaker 1: is not going to prompt immediate interest rate increases. James,

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Speaker 1: We've getting We're we've been getting inflation pretty some some

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Speaker 1: pretty serious inflation. I'm speechless, uh, tongue tied over how

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Speaker 1: much asset prices have inflated, and the fact that we

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Speaker 1: hear less and less about this from Federal Reserve officials

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Speaker 1: who dismissed that as just a part of how to

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Speaker 1: get to a more stable economy. But at what point

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Speaker 1: does a fet have to take a look at just

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Speaker 1: how much asset prices have increased and the lack of

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Speaker 1: any gains that we're seeing necessarily in the economy from

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Speaker 1: the regime that led to those higher asset prices. Well,

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Speaker 1: that's right, I mean it's it's the lack of attractive

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Speaker 1: yields on fixed income assets has squeezed investors into higher

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Speaker 1: risk assets like like equities, and you've ended up with

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Speaker 1: some strong equity performance and some and some high valuations.

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Speaker 1: And as long as you think that inflation risks are

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Speaker 1: to the downside, then the set is going to continue

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Speaker 1: to continue to signal low rates, which which is supported

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Speaker 1: for for equities. Um. But if you look farther route,

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Speaker 1: you know, maybe a day will come where financial stability

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Speaker 1: risks are triggered by these strong risky assets, or maybe

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Speaker 1: a day will come where equities go up so much

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Speaker 1: that you know, some economic of triggers a sharp reversal

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Speaker 1: in the opposite direction, and then you've got real troubles

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Speaker 1: if you've got below average inflation and now you have

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Speaker 1: an unfriendly equity market instead of a friendly one. So

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Speaker 1: that the FED is really on thin ice here, um.

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Speaker 1: Given given where the economy is, and there's another way

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Speaker 1: of looking at this story, which is can low yield

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Speaker 1: and even lower yields from here create more jobs? What's

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Speaker 1: the FED actually doing with improving the labor backdrop? Well?

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Speaker 1: I think that if you look at the housing data,

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Speaker 1: right now I think there's a clear channel for job

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Speaker 1: creation from low rates. It runs through low mortgage rates,

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Speaker 1: high housing starts. UM. We have seen some resilience in

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Speaker 1: the housing sector, and historically housing has been a sector

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Speaker 1: that is quite correlated to to FED decisions and where

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Speaker 1: interest rates are. So the FED is helping, but the

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Speaker 1: economy has a lot of issues, and a lot of

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Speaker 1: sectors are not as directly correlated with with interest rates

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Speaker 1: and financial conditions as housing and UM and and and

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00:23:59,280 --> 00:24:00,879
Speaker 1: because of that, you know, we still have a very

432
00:24:00,920 --> 00:24:03,280
Speaker 1: very high unemployment rate and it's likely not to be

433
00:24:03,880 --> 00:24:06,760
Speaker 1: back down in the comfortable four to five range for

434
00:24:06,960 --> 00:24:10,439
Speaker 1: several years at least. James Sweeney with this is credit sweets.

435
00:24:10,480 --> 00:24:12,720
Speaker 1: We will continue. We welcome all of you on Bloomberg Radio,

436
00:24:12,760 --> 00:24:16,720
Speaker 1: Bloomberg Television worldwide as simulcast John Farrell, Lisa Bryan Witts,

437
00:24:16,760 --> 00:24:18,360
Speaker 1: and Tom Keene. I do want to look at the data.

438
00:24:18,440 --> 00:24:22,840
Speaker 1: Equities haven't moved, bonds of move futures up fourteen down,

439
00:24:22,840 --> 00:24:25,720
Speaker 1: futures up one seventy six, and the yield really breaks

440
00:24:25,720 --> 00:24:28,440
Speaker 1: out of four one point one and the thirty year

441
00:24:28,720 --> 00:24:31,920
Speaker 1: bond that's a solid five basis point. Movies are higher

442
00:24:31,960 --> 00:24:36,680
Speaker 1: yields and lower UH bill note and bond prices as well.

443
00:24:36,800 --> 00:24:40,240
Speaker 1: Dollar weakness this morning, and gold implodes negative eight dollars,

444
00:24:40,240 --> 00:24:44,640
Speaker 1: down a ninety one the ounce as well. James Sweeney,

445
00:24:44,720 --> 00:24:46,800
Speaker 1: I really want to talk about the caution that you

446
00:24:46,920 --> 00:24:49,720
Speaker 1: had last time, and it's certainly something you mentioned the

447
00:24:49,720 --> 00:24:53,440
Speaker 1: fetes watching as well. Where's the unemployment rate right now?

448
00:24:54,000 --> 00:24:55,800
Speaker 1: And you mentioned we're never going to get back to

449
00:24:55,880 --> 00:25:00,280
Speaker 1: four percent? Where are we heading? Well, I mean, I

450
00:25:00,280 --> 00:25:03,480
Speaker 1: think this is still pandemic unemployment. So I think there's

451
00:25:03,520 --> 00:25:06,680
Speaker 1: a lot of businesses whose customers are not showing up

452
00:25:06,800 --> 00:25:10,959
Speaker 1: yet at normal rates, and so the labor demand just

453
00:25:11,040 --> 00:25:13,680
Speaker 1: isn't there. So I think, you know, we're well north

454
00:25:13,680 --> 00:25:16,159
Speaker 1: of ten percent and unemployment. But I think when we

455
00:25:16,160 --> 00:25:18,960
Speaker 1: get the vaccine, when the pandemic is under better control

456
00:25:19,400 --> 00:25:24,080
Speaker 1: and people start returning to hotels and airlines and restaurants

457
00:25:24,119 --> 00:25:26,600
Speaker 1: in in a more normal way, unemployment is going to

458
00:25:26,640 --> 00:25:29,360
Speaker 1: fall very sharply. Um. But I think there's a lot

459
00:25:29,359 --> 00:25:31,119
Speaker 1: of damage done and I don't think it's going to

460
00:25:31,200 --> 00:25:34,000
Speaker 1: fall all the way to five, say next year, even

461
00:25:34,040 --> 00:25:37,080
Speaker 1: in a pretty good outcome for the pandemic. So it's

462
00:25:37,080 --> 00:25:40,239
Speaker 1: going to take a while to heal this economy, and

463
00:25:40,240 --> 00:25:42,840
Speaker 1: then to combine this, James, and you've been so good

464
00:25:42,840 --> 00:25:45,760
Speaker 1: at this over the last fifteen years, you have to

465
00:25:45,800 --> 00:25:50,959
Speaker 1: fold it into wage deflation, the great fear wage disinflation

466
00:25:51,680 --> 00:25:54,680
Speaker 1: or wage inflation. What is your call on wages given

467
00:25:54,720 --> 00:25:59,080
Speaker 1: this crazy environment we're in. Well, I mean, high unemployment

468
00:25:59,320 --> 00:26:02,639
Speaker 1: just can't be for wages um. But in the wage data,

469
00:26:02,800 --> 00:26:04,720
Speaker 1: there's a lot going on at the moment. I mean,

470
00:26:04,760 --> 00:26:07,960
Speaker 1: we've seen a lot of people into a lot of

471
00:26:07,960 --> 00:26:10,880
Speaker 1: people actually taking wage cuts, which which normally doesn't happen

472
00:26:10,960 --> 00:26:14,080
Speaker 1: during during the pandemic. So you've seen some wages actually

473
00:26:14,280 --> 00:26:18,600
Speaker 1: ratchet lower um. In some industries, you may be desperate

474
00:26:18,640 --> 00:26:20,960
Speaker 1: for workers that you can't find and wages may be rising.

475
00:26:21,000 --> 00:26:23,480
Speaker 1: And we're seeing this in consumer goods prices as well.

476
00:26:23,920 --> 00:26:28,160
Speaker 1: UM a increase in variation in prices at the unit

477
00:26:28,200 --> 00:26:30,680
Speaker 1: of a job or at the unit of a specific good,

478
00:26:30,960 --> 00:26:33,639
Speaker 1: but an aggregate. If the economy is running at a

479
00:26:33,720 --> 00:26:36,959
Speaker 1: very low level of demand with low GDP and high unemployment,

480
00:26:37,320 --> 00:26:39,159
Speaker 1: you know the pressure on wages is going to is

481
00:26:39,200 --> 00:26:41,639
Speaker 1: going to be down rather than rather than up. And

482
00:26:42,040 --> 00:26:44,639
Speaker 1: same for for inflation. For a while, what do you

483
00:26:44,680 --> 00:26:48,560
Speaker 1: see as the outlook for younger individuals entering the workforce.

484
00:26:48,600 --> 00:26:50,960
Speaker 1: This has been an increasing area of focus as this

485
00:26:51,080 --> 00:26:55,240
Speaker 1: area has been particularly hard hit. Those entry level jobs

486
00:26:55,240 --> 00:26:59,120
Speaker 1: just have been completely destroyed as people stay home. How

487
00:26:59,200 --> 00:27:02,640
Speaker 1: much will that's this generation back in terms of wages,

488
00:27:02,680 --> 00:27:05,760
Speaker 1: in terms of household creation? Is that factoring into any

489
00:27:05,800 --> 00:27:09,160
Speaker 1: of your estimates right now? Well, I mean, on long

490
00:27:09,200 --> 00:27:11,560
Speaker 1: on from a long term perspective, you have to look

491
00:27:11,560 --> 00:27:14,040
Speaker 1: at those things. I think some of the literature does

492
00:27:14,080 --> 00:27:18,639
Speaker 1: suggest that, UM, losing opportunities in the very early stage

493
00:27:18,640 --> 00:27:20,960
Speaker 1: of your career can be really harmful. So you hope

494
00:27:21,000 --> 00:27:24,320
Speaker 1: that people are finding ways to invest in themselves and

495
00:27:24,400 --> 00:27:27,080
Speaker 1: get some more education and and things like that to

496
00:27:27,119 --> 00:27:29,040
Speaker 1: get them on a good track. But there's no doubt

497
00:27:29,560 --> 00:27:32,800
Speaker 1: that the opportunity is available to new graduates this year

498
00:27:33,320 --> 00:27:36,960
Speaker 1: are going to be abnormally abnormally weak because of the pandemic.

499
00:27:37,000 --> 00:27:39,960
Speaker 1: It's just one of the many painful consequences of this.

500
00:27:40,280 --> 00:27:47,080
Speaker 1: Do you see business investment, Um, it's a business investment

501
00:27:47,119 --> 00:27:51,159
Speaker 1: is soft. Um, it's it's improving from you know, the

502
00:27:51,200 --> 00:27:55,400
Speaker 1: shutdown period, but it's not it's not great. UM. We're

503
00:27:55,440 --> 00:27:58,879
Speaker 1: seeing better results in residential investment, which is which is

504
00:27:58,960 --> 00:28:02,800
Speaker 1: home home by and we're seeing a decent rebound in

505
00:28:03,119 --> 00:28:07,480
Speaker 1: consumption and consumer spending, but business investment, businesses are going

506
00:28:07,560 --> 00:28:10,800
Speaker 1: to be cautious while we're still in the pandemic. So

507
00:28:10,960 --> 00:28:14,520
Speaker 1: even though we have very low interest rates, et cetera. UM,

508
00:28:14,800 --> 00:28:17,280
Speaker 1: I think businesses will wait for clarity and you hope

509
00:28:17,320 --> 00:28:19,680
Speaker 1: that you're going to have a big pick up investment

510
00:28:19,960 --> 00:28:22,600
Speaker 1: over the next twelve to eighteen months, but this is

511
00:28:22,600 --> 00:28:24,600
Speaker 1: not the time for it yet, except for in a

512
00:28:24,640 --> 00:28:28,080
Speaker 1: few special sectors. Wonderful James Sweeney, thank you so much.

513
00:28:28,119 --> 00:28:33,879
Speaker 1: The credit sweet Chief economists christ Castman Joines is now

514
00:28:33,920 --> 00:28:37,760
Speaker 1: head of economics for Mr Diamond and JP Morgan. Bruce Casman,

515
00:28:37,840 --> 00:28:40,760
Speaker 1: your note this weekend, I thought was exceptionally good. It

516
00:28:40,840 --> 00:28:43,840
Speaker 1: was a two part note. Let's talk inflation. First. You

517
00:28:44,000 --> 00:28:50,240
Speaker 1: partition between short term supply shock inflation in the medium

518
00:28:50,360 --> 00:28:55,720
Speaker 1: term reality discuss. Okay, So I think what we're gonna

519
00:28:55,840 --> 00:28:58,360
Speaker 1: see on inflation to some degree mirrors what we're going

520
00:28:58,440 --> 00:29:01,040
Speaker 1: to see on growth. We had a horrible collapse and

521
00:29:01,120 --> 00:29:03,400
Speaker 1: activity in the spring, and we're gonna have a surge

522
00:29:03,800 --> 00:29:05,920
Speaker 1: as we go through the spring and summer, led by

523
00:29:05,960 --> 00:29:09,920
Speaker 1: goods producing industries. The combination of that with the supply

524
00:29:10,120 --> 00:29:13,160
Speaker 1: chain disruptions which were already seeing in some place, we

525
00:29:13,160 --> 00:29:15,960
Speaker 1: think it's going to lead to a particularly rapid move

526
00:29:16,080 --> 00:29:20,600
Speaker 1: up in inflation, particularly in goods, and I think the

527
00:29:20,680 --> 00:29:22,120
Speaker 1: US is going to be a big part of this,

528
00:29:22,200 --> 00:29:23,960
Speaker 1: and we're starting to see it, and we think we'll

529
00:29:23,960 --> 00:29:28,240
Speaker 1: see it with the PC report on Friday. However, this

530
00:29:28,320 --> 00:29:30,920
Speaker 1: is likely to be a temporary phenomenon, and as we

531
00:29:30,960 --> 00:29:34,240
Speaker 1: settle into more stable growth, as the price increases for

532
00:29:34,280 --> 00:29:38,840
Speaker 1: the supply side um shock fade, we end up with

533
00:29:38,880 --> 00:29:41,560
Speaker 1: a world where we think we have an incomplete overall recovery.

534
00:29:41,600 --> 00:29:44,720
Speaker 1: We have slack, We have limited tools on the part

535
00:29:44,760 --> 00:29:47,960
Speaker 1: of central banks to really add more stimulus, and we

536
00:29:48,000 --> 00:29:51,280
Speaker 1: think we settle into something lower on inflation, with as

537
00:29:51,320 --> 00:29:54,360
Speaker 1: in the growth side, to split between services and goods

538
00:29:54,360 --> 00:29:58,560
Speaker 1: being particularly pronounced politically and with a collective memory of

539
00:29:58,600 --> 00:30:02,200
Speaker 1: the sixties, Can a central bank, including the Powell Fed,

540
00:30:02,880 --> 00:30:06,040
Speaker 1: can they ignore lumber prices in the short term surge

541
00:30:06,080 --> 00:30:09,480
Speaker 1: and inflation you call for Oh, I think they can,

542
00:30:09,560 --> 00:30:11,000
Speaker 1: and I think the Fed if you go back and

543
00:30:11,040 --> 00:30:14,320
Speaker 1: look at two thousand sant eleven, they did the same thing.

544
00:30:14,960 --> 00:30:18,640
Speaker 1: They've lived through the last decade. Uh, they have faced

545
00:30:18,960 --> 00:30:22,720
Speaker 1: persistent undershoots and inflation. They're committed to trying to get

546
00:30:22,720 --> 00:30:25,040
Speaker 1: inflation off, and I think they're going to be very

547
00:30:25,280 --> 00:30:29,480
Speaker 1: vigilant here in holding the line. However, if we do

548
00:30:29,600 --> 00:30:32,680
Speaker 1: get the fallback, the problem is not that the FED

549
00:30:32,760 --> 00:30:35,720
Speaker 1: can be patient in the face of higher inflation. What

550
00:30:35,800 --> 00:30:38,480
Speaker 1: they can't do is provide much stimulus in the face

551
00:30:38,520 --> 00:30:42,800
Speaker 1: of disappointing low inflation. So, Bruce, when you talk about

552
00:30:42,800 --> 00:30:46,000
Speaker 1: your temporary bump in inflation, give us a sense of

553
00:30:46,040 --> 00:30:49,520
Speaker 1: how much of that is supply versus, you know, a

554
00:30:49,640 --> 00:30:53,720
Speaker 1: real increase or rebound in demand. It's really hard to

555
00:30:54,160 --> 00:30:57,520
Speaker 1: separate those um In fact, if you look at the recession,

556
00:30:57,960 --> 00:31:00,920
Speaker 1: goods pricing did not go down as much food prices

557
00:31:00,960 --> 00:31:04,560
Speaker 1: actually went up. It does feel, given how sharply activity

558
00:31:04,640 --> 00:31:08,360
Speaker 1: felt in those sectors, that there was some supply disruption.

559
00:31:08,640 --> 00:31:12,720
Speaker 1: Supply chains weren't functioning, distributional line weren't working, so there

560
00:31:12,800 --> 00:31:15,080
Speaker 1: was some supply effect. Now what's going to happen is

561
00:31:15,120 --> 00:31:17,720
Speaker 1: those problems are not going away, and now we're getting

562
00:31:17,720 --> 00:31:20,200
Speaker 1: a surge in demand. So I don't think it's easy

563
00:31:20,240 --> 00:31:23,400
Speaker 1: to separate those two I think they're both contributing. I

564
00:31:23,400 --> 00:31:26,160
Speaker 1: think it's in the services sector where it's easier to say,

565
00:31:26,480 --> 00:31:29,320
Speaker 1: while there are some supply side pressures, the weakness and demand,

566
00:31:29,360 --> 00:31:31,720
Speaker 1: the slow recovery there is probably going to be the

567
00:31:31,760 --> 00:31:35,720
Speaker 1: dominant factor in terms of limiting the underlying pickup and inflation.

568
00:31:35,760 --> 00:31:38,600
Speaker 1: But both factors I think are quite important. We're looking

569
00:31:38,600 --> 00:31:41,600
Speaker 1: for the fastest pace a good price inflation globally and

570
00:31:41,640 --> 00:31:44,440
Speaker 1: over a decade. Over the second half of this year, well,

571
00:31:44,480 --> 00:31:48,600
Speaker 1: the second half. The second half of your note really

572
00:31:48,760 --> 00:31:51,680
Speaker 1: is a beautiful exposition about how the economy is going

573
00:31:51,760 --> 00:31:53,800
Speaker 1: to come back, but not come back to where we

574
00:31:54,200 --> 00:31:56,480
Speaker 1: where we knew it. And as you know, I look

575
00:31:56,520 --> 00:32:00,400
Speaker 1: at this almost as is graphically an asome tote. What

576
00:32:00,480 --> 00:32:04,440
Speaker 1: are we coming back to a set lower potential g

577
00:32:04,600 --> 00:32:09,920
Speaker 1: d P, A set lower just vibrancy nominal GDP. What

578
00:32:10,000 --> 00:32:14,320
Speaker 1: are we coming back to? Well, I think the easy

579
00:32:14,520 --> 00:32:16,800
Speaker 1: answer to that is we're coming back to a number

580
00:32:16,800 --> 00:32:20,880
Speaker 1: of challenges. Challenges that have to do with big dislocations

581
00:32:20,920 --> 00:32:23,760
Speaker 1: in some key industries. Challenges have to do with the

582
00:32:23,800 --> 00:32:26,360
Speaker 1: fact that you know, in our forecast where at least

583
00:32:26,400 --> 00:32:28,480
Speaker 1: three or four million jobs short, a year and a

584
00:32:28,520 --> 00:32:31,720
Speaker 1: half from now from where we work before the crisis.

585
00:32:31,960 --> 00:32:35,440
Speaker 1: What's harder to see is the political response, uh the

586
00:32:35,440 --> 00:32:38,400
Speaker 1: economic responses. You know, after the global financial crisis, a

587
00:32:38,400 --> 00:32:40,480
Speaker 1: lot of the problems we've faced were because of the

588
00:32:40,520 --> 00:32:45,440
Speaker 1: reverberations politically, the early tightening in US fiscal policy, the

589
00:32:45,480 --> 00:32:49,440
Speaker 1: European sovereign crisis, So lots will depend on how politics respond.

590
00:32:50,120 --> 00:32:52,600
Speaker 1: A key call we have is we're just not confident

591
00:32:52,680 --> 00:32:56,200
Speaker 1: that policy makers can respond to the challenges of the expansion,

592
00:32:56,240 --> 00:32:59,160
Speaker 1: even though they responded very well to the challenges of

593
00:32:59,200 --> 00:33:01,720
Speaker 1: the crisis. So I think there's every reason to worry

594
00:33:01,720 --> 00:33:04,880
Speaker 1: about potential growth, is every reason to worry about political

595
00:33:04,920 --> 00:33:08,160
Speaker 1: pressures because of inequality and dislocations. But I think it's

596
00:33:08,160 --> 00:33:11,800
Speaker 1: pretty hard to map those specifically, other than recognizing we're

597
00:33:11,800 --> 00:33:14,479
Speaker 1: going to have a pretty incomplete recovery with a lot

598
00:33:14,560 --> 00:33:18,560
Speaker 1: of challenges ahead. So first, do you expect any material

599
00:33:18,600 --> 00:33:20,400
Speaker 1: help out of our friends in Washington, d C. In

600
00:33:20,480 --> 00:33:25,720
Speaker 1: terms of additional round of meaningful stimulus. Well, I'm not

601
00:33:25,760 --> 00:33:28,520
Speaker 1: saying I'm confident, but we still have a view that

602
00:33:28,560 --> 00:33:30,800
Speaker 1: will get something between a trillion and a trillion and

603
00:33:30,800 --> 00:33:34,120
Speaker 1: a half package before the end of September, we already

604
00:33:34,160 --> 00:33:37,080
Speaker 1: will have done some damage by the delay of passing it.

605
00:33:37,320 --> 00:33:40,360
Speaker 1: But I think the key point about US fiscal policy

606
00:33:40,520 --> 00:33:42,680
Speaker 1: is that whether we get a package in September or not,

607
00:33:42,760 --> 00:33:46,240
Speaker 1: the way we're implementing it. The crisis mode was effective

608
00:33:46,240 --> 00:33:48,880
Speaker 1: in getting money in the hands of households, but this

609
00:33:49,080 --> 00:33:52,840
Speaker 1: temporary stop and go type policy is going to be

610
00:33:53,000 --> 00:33:56,280
Speaker 1: very difficult to be successful in terms of managing the

611
00:33:56,320 --> 00:33:59,200
Speaker 1: early stages of the recovery. And I contrast Europe, where

612
00:33:59,200 --> 00:34:01,520
Speaker 1: I think there's a much steadier hand in the way

613
00:34:01,600 --> 00:34:04,360
Speaker 1: policy is being delivered, and that's a big contrast to

614
00:34:04,400 --> 00:34:07,719
Speaker 1: what we saw in the last decade. Fascinating. Bruce Casmin,

615
00:34:07,800 --> 00:34:09,960
Speaker 1: thank you so much for joining us in Shorts, is

616
00:34:10,040 --> 00:34:13,520
Speaker 1: chief economist at JP Morgan as well. Thanks for listening

617
00:34:13,560 --> 00:34:18,120
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

618
00:34:18,120 --> 00:34:23,360
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

619
00:34:23,920 --> 00:34:27,279
Speaker 1: I'm on Twitter at Tom Keane Before the podcast, you

620
00:34:27,280 --> 00:34:30,680
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio