Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
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Speaker 1: are two kinds of technical analysis, which by the way,
Speaker 1: really works on Bloomberg Radio and we said good morning
Speaker 1: to all of you. One of them is stochastic, which
Speaker 1: is the movement the spikes trying to catch the knife
Speaker 1: in the dark, and the other is trend based analysis.
Speaker 1: Anybody that knows my work over the years knows I
Speaker 1: am totally and completely in the trend based camp, as
Speaker 1: is Christopher Verrou and the fabulous technical analysts. It's trtiguous. Chris,
Speaker 1: it was great to hear your children in the background
Speaker 1: before they were sequestioned before we came on. What is
Speaker 1: it like naming your young children's support and resistance? Did
Speaker 1: that go over well with Mrs vone? You know, it
Speaker 1: didn't go over as well as you might think. Support
Speaker 1: and resistance is the trend right now? What is the
Speaker 1: equity market trend? Now? Are we breaking out of resistance
Speaker 1: to new higher levels? Yeah, and I think that's clear.
Speaker 1: But what I think is less clear and arguably more important,
Speaker 1: is under the surface. We continue to see signs that
Speaker 1: participations actually getting broader. Here as you see it with
Speaker 1: just over the last month of the reinvolvement of industrial
Speaker 1: is the improvement in discretionary I mean, these are groups
Speaker 1: that have largely been relative laggard for the past two
Speaker 1: and a half years that are starting to showcase sometimes
Speaker 1: some type of relative strength. That is welcome, and I
Speaker 1: think it reflects a broadening of leadership and that's certainly
Speaker 1: something I think most participants have been creating. This word relative, folks,
Speaker 1: is absolutely foundational trend based analysis, and I want to
Speaker 1: go to the relativeness Christopher roone of those eight stocks
Speaker 1: that are going up, we know who they are, the
Speaker 1: digital dominance and everything else. For everything else to improve
Speaker 1: and go up, do they do it on an absolute
Speaker 1: basis or do they simply have to do it relative
Speaker 1: to a stable or even advancing tech group. I think
Speaker 1: they have to do on a relative basis. And what
Speaker 1: I'm occouraged by is that it's actually happening. I'll give
Speaker 1: you a couple of examples. When you look at like
Speaker 1: transportation group. For example, we look at transport relative to
Speaker 1: utility is as a barometer for cyclicality. It transports of
Speaker 1: underperformed utilities for the better part of the last two
Speaker 1: and a half years. That has decisively changed over the
Speaker 1: last eight to twelve weeks. We see with the broader
Speaker 1: industrial sector. Yesterday consumer discretionary flipped to positive in our
Speaker 1: relative trend model. So all the things you'd want to
Speaker 1: see that would support the idea that participation, particularly in
Speaker 1: relative terms, as you talk about, I think it's important
Speaker 1: all the things you'd want to see in that front
Speaker 1: are happening. I'm surprised to hear you say this because
Speaker 1: we hear from Morgan Stanley's uh. We hear from their
Speaker 1: chief equity strategist that he thinks that we're going to
Speaker 1: see a potential sell off if we get an ongoing
Speaker 1: optimism in the economy. The idea of Mike Wilson coming
Speaker 1: out and saying that because of how narrow the leadership
Speaker 1: has been, it makes this rally fragile. What are you
Speaker 1: seeing that he's not well. I think what's most important,
Speaker 1: and this has been the focus of our work over
Speaker 1: the last number of weeks, is that the leadership tone
Speaker 1: of the equity market, we think is telling us, is
Speaker 1: screaming at us that you should expect a positive economic
Speaker 1: surprise in the back half of the year. We just
Speaker 1: can't think of any other reason why things like industrials
Speaker 1: and discretionary and materials and transports would be acting as
Speaker 1: well as they are here. And frankly, that's pretty consistent
Speaker 1: with what you would expect to see in the first
Speaker 1: several months of a new economic cycle. So I think
Speaker 1: the market is telling us the consensus is probably still
Speaker 1: is still too pessimistic about the trajectory of the economy
Speaker 1: from here. Although Chris, I wonder about fundamental analysis at
Speaker 1: a time when best By this morning was the latest
Speaker 1: company to to draw any prediction for how their business
Speaker 1: would do for the rest of this year, how accurate
Speaker 1: can traders be in this equity market at a time
Speaker 1: of such limited visibility? Well, I would just positive. Is
Speaker 1: this really any different from any other moment in history?
Speaker 1: And it's easy to say yes, but I would argue
Speaker 1: that it's not. And by that I mean, go look
Speaker 1: five six months off any major market loan history. You're
Speaker 1: not gonna like where the economy was. You're not gonna
Speaker 1: like the visibility that was in front of you. That's
Speaker 1: the game we played. That's investing um so. I I
Speaker 1: don't think this is as unique as the consensus wants
Speaker 1: it to be. I think what you've seen historically is
Speaker 1: markets discount future improvement. I don't think the markets describing
Speaker 1: the economy today. I think the markets describing the economy
Speaker 1: that's in front of us, and I think it's stronger
Speaker 1: than what the consensus expects. Okay, Chrispherhon, I looked at
Speaker 1: the SPX and I used a fancy moving average study.
Speaker 1: This is three moving averages. Good morning, George Kleinman out
Speaker 1: of Nevada, if you're watching, christopherone. I looked at the
Speaker 1: trend base and it's extremely well behaved, extremely well contained.
Speaker 1: Can you extrample to a target? And if so, how
Speaker 1: far out can you go? With enthusiasm? So the only
Speaker 1: targets we care about are higher or lower, and that
Speaker 1: means it's the trend up or is the trend down.
Speaker 1: I think the trend is up here, and that tells
Speaker 1: us Tom what rules were playing by. And when trends
Speaker 1: are positive, you buy weakness. You know, it's been five
Speaker 1: or six months since we've had anything more than a
Speaker 1: five or six percent drawn out. Is it reasonable that
Speaker 1: we may get something like that over the next several months.
Speaker 1: Of course it is. But how do we want to
Speaker 1: treat weakness? We want to be buyers of weakness when
Speaker 1: participation expanding and when trend is up. And I think
Speaker 1: that's build a base case here, which sector is the
Speaker 1: best value the rest relative value? I mean, I want
Speaker 1: to buy the dip in Amazon. Maybe it happens, maybe
Speaker 1: it doesn't. The banks are unloved, which is the Christopher
Speaker 1: On sector where you get to pop off everything else.
Speaker 1: I think industrials are emerging as multi year leaders here.
Speaker 1: They've frankly have been in purgatory for the better part
Speaker 1: of the last half a decade. I think that's changed
Speaker 1: in a meaningful way. I would encourage everyone to look
Speaker 1: at an equally weighted industrial sector relative to the SMP
Speaker 1: you just broke out from a five year base. This
Speaker 1: is the real deal. This is the start of meetingful
Speaker 1: leadership in that group. Let's say yields rise, at what
Speaker 1: level do they have to rise to that that could
Speaker 1: potentially disrupt your theory and you could see a sell
Speaker 1: off in stocks. Well, I think what's interesting is this
Speaker 1: is the point in a new economic cycle where you
Speaker 1: would actually expect to see yields start to rise. I
Speaker 1: think the fact that they haven't is in many respects
Speaker 1: adding more fuel to this cyclical bias that has started
Speaker 1: to emerge. Um. In many respects, you know, go back
Speaker 1: to let's call it mid two eighteen, late two thousand eighteen,
Speaker 1: bond yields for three percent, cyclicality was starting to peak. Um,
Speaker 1: Chinese stocks are rolling over Chinese bond yields were rolling
Speaker 1: over all. The exact opposite trends are playing out right now.
Speaker 1: So I think the runway before you could say yields
Speaker 1: are a big problem to disrupting the story. I don't
Speaker 1: know whether that ninety bases points, the Hunter basis point,
Speaker 1: a hundred and ten basis points, but I think it's
Speaker 1: higher than where it is right now. Very good, Christopher on,
Speaker 1: Thank you so much. I just gotta Saint Lisa. There's
Speaker 1: so few people that work the circuit constructively like Regina Mayor.
Speaker 1: She owns for the World Economic Forum at Davos right
Speaker 1: on down to every other energy conference. She absolutely owns
Speaker 1: the high ground on this. But Lisa, there's something more
Speaker 1: important to talk to you right now, and that is
Speaker 1: there miserable and irving Texas this morning. Yeah, so they're
Speaker 1: watching the storm, they're watching Laura bear down on them,
Speaker 1: which is threatening a whole host of oil reserves. And
Speaker 1: let's start their Regina. The idea that you've got these
Speaker 1: twin storms, with Marco actually fizzling out, but Laura still
Speaker 1: looking like a hurricane headed toward the Gulf coast. How
Speaker 1: much could this disrupt oil production the US. Well, it's
Speaker 1: not less of a risk on the supply side with
Speaker 1: oil production because only about ten percent of US production
Speaker 1: comes out of the Gulf of Mexico, and we're sitting
Speaker 1: quite pretty with regard to crude supply. The thing to
Speaker 1: keep an eye on is refined product supply destruction because
Speaker 1: of the US refine capacity comes from the Texas and
Speaker 1: Louisiana Gulf coast. So, based on the current projection with
Speaker 1: hurricane or tropical storm Laura projected to become a Category
Speaker 1: three hurricane, you could say roughly of gasoline capacity is
Speaker 1: in the path. I'm less worried about that though, because
Speaker 1: I don't think it'll take that capacity offline. Um, But
Speaker 1: but there is at risk and meanwhile over in Irving,
Speaker 1: there's another storm, and that is the storm against hydrocarbons,
Speaker 1: with the energy moving away from that area Exxon and
Speaker 1: being removed from the TAO, the longest serving member of
Speaker 1: the index, after its market share fell from four hundred
Speaker 1: and fifty billion dollars of market capitalization back to less
Speaker 1: than two hundred billion dollars. Now, are we just seeing
Speaker 1: the beginning of the destruction of the hydrocarbon complex or
Speaker 1: is this the end of the destruction? Well, it is.
Speaker 1: It does mark a shift in the era of where
Speaker 1: capital wants to go and what investors are going to
Speaker 1: look at. Are the text box are clearly on a boom.
Speaker 1: You know, I wish I had made some different choices,
Speaker 1: you know, early in the pandemic. But it does indicate
Speaker 1: that the large industrial you know, the behemoths of our time,
Speaker 1: are probably not where capital wants to flow. And it
Speaker 1: does mean that these very large international oil companies have
Speaker 1: to pivot their portfolios to embrace what's known as the
Speaker 1: energy transition if they're going to stay relevant. And you
Speaker 1: see the different players taking different strategies, and I do
Speaker 1: think they will pivot and survive. But this does indicate
Speaker 1: a big shift in investor sentiment. Regina, what's so hard
Speaker 1: of the matter here is combination. I mean we saw
Speaker 1: Anna Darko takeout and what Ox he's done in their
Speaker 1: over extension and Mr Buffet coming into play as well.
Speaker 1: Do you just see an industry roll up to get
Speaker 1: back to the size of revenues where they have scale
Speaker 1: to profit. Well, I think it is a scale game,
Speaker 1: and you're absolutely right there. But you know, the bid
Speaker 1: ask spreads are still so far apart and where I
Speaker 1: would have thought we would have seen more of a
Speaker 1: wave of mergers and acquisitions. Balance sheets are under such
Speaker 1: pressure that it's difficult to get the capital to make
Speaker 1: a play um and it's difficult to see the consolidation
Speaker 1: that we need to see. However, you know there have
Speaker 1: been some moves, and there was Chevron's acquisition of Noble
Speaker 1: looks very very smart in this environment. Well, man, I
Speaker 1: was going to go to chevn but I really don't
Speaker 1: want to talk individual securities. I mean, they go after
Speaker 1: Noble and they got pushed out of Anna Darker. I
Speaker 1: get all that. Does the big money come into his
Speaker 1: private equity come in and start acquiring value priced hydrocarbons?
Speaker 1: Do you see someone like black Stone, or even black
Speaker 1: Rock for that matter, playing. I think the pe firms
Speaker 1: have have done their bit in the last decade, especially
Speaker 1: in the two thousand, in the two thousand tens, and
Speaker 1: most of them are actually trying pull out. Now, what
Speaker 1: I think will end up seeing is you'll see assets
Speaker 1: change hands because the assets still have underlying value, but
Speaker 1: the companies that are structured around them, with the debt
Speaker 1: and the equity portfolios that they have, look less attractive.
Speaker 1: So I think we're gonna have to see more restructuring,
Speaker 1: more debt consolidation, and then you'll see the assets shift,
Speaker 1: but maybe less the company logos shifting. Have we already
Speaker 1: seen Regina peak oil demand. I don't think so, Lisa.
Speaker 1: There has been some that will say two thousand nineteen
Speaker 1: might have been peak demand. We still see projections that
Speaker 1: will take us up to a ten million barrels per day,
Speaker 1: which is still ten million barrels per day more than
Speaker 1: we consume uh in, and you'll still see that into
Speaker 1: the timeframe. We don't have a base of energy that
Speaker 1: will sustain all of our needs that does not include
Speaker 1: some element of hydrocarbon, at least in the foreseeable future.
Speaker 1: Do you think the pandemic has accelerated the iift away
Speaker 1: from hydrocarbons or do you think that it's actually slowed
Speaker 1: it because of the subduing of the price of oil.
Speaker 1: I think it's accelerated the shift. We've demonstrated. You know
Speaker 1: what we can do for the environment and how we
Speaker 1: can reduce carbon simply by restricting our movements and not
Speaker 1: flying as much as we were from a business travel perspective,
Speaker 1: not commuting as much as we were, not going to
Speaker 1: different shopping centers. That doesn't directly translate into a reduction
Speaker 1: of gasoline demand, but we've seen the positive impacts we
Speaker 1: can have on the carbon and most of the other countries,
Speaker 1: when you look at their stimulus packages, they include green stimulus.
Speaker 1: Notably absent. The US isn't focusing as much on green stimulus,
Speaker 1: meaning you know, new energy types of transitions. But globally,
Speaker 1: I believe the pandemic has accelerated the move toward the
Speaker 1: energy transition. Regina, Thank you so much, Regina Mayor. Where
Speaker 1: there's the KPMG on this historic day, Exxon out of
Speaker 1: the Dow Jones industrial average right now and it is
Speaker 1: a great joy to speak to Terence Haynes. He's a
Speaker 1: Pengia policy writing a really grounded business centric policy note
Speaker 1: out of Washington, and he really sums it up nicely.
Speaker 1: Stuck doing just war duty, I say, out in western Maryland, folks,
Speaker 1: this is not Baltimore, Baltimore and Baltimore. If you go
Speaker 1: out west of Maryland, pass Hagerstown, it is some of
Speaker 1: the most gorgeous country in this nation. And Mr Haynes
Speaker 1: joins us from western Maryland this morning. Terry. The distance
Speaker 1: from Hagerstown to Baltimore, from Cumberland to Baltimore is the
Speaker 1: space between the Republican and the Democratic Party. How how
Speaker 1: does Mr Trump stretch that space? How does he get
Speaker 1: east of Hagerstown more towards the suburb voters that he needs.
Speaker 1: I think two ways, Tom one he and you're absolutely
Speaker 1: right about the chasm between Hagerstown and Baltimore. Um, the
Speaker 1: is it? In two ways? One? Uh? He? He excites
Speaker 1: his base. He tells a story. And you know, one
Speaker 1: of the great things about conventions is that they're they're
Speaker 1: rare opportunities for a candidate and a party to tell
Speaker 1: an unfiltered story. And that's what, of course the Democrats
Speaker 1: did last week. But the Republicans are doing this week. Um,
Speaker 1: he reminds people of kind of of of accomplishments, he
Speaker 1: contextualizes that. But then that's the positive message, and then
Speaker 1: the negative message is, of course, he differentiates very strongly
Speaker 1: from from what Democrats, Uh, the Democrats might prefer, and
Speaker 1: to to reach beyond the base and get the independence
Speaker 1: is actually an opportunity for Trump right now. There was
Speaker 1: a recent recent poll that was highlighted by the Axios
Speaker 1: site that showed that only Independence had a positive view
Speaker 1: of Biden. So that's, uh, that's fertile ground for Trump
Speaker 1: to really start hammering in that the economy is at stake,
Speaker 1: that the law and order is at stake, those sorts
Speaker 1: of things, and you appeal to people's most basic instincts
Speaker 1: and hopes and fears, and you know, you tell that
Speaker 1: story fairly free of new ones, and you know you
Speaker 1: can get there within this unique two thousand twenty. How
Speaker 1: is his law in order message different from Richard Nixon
Speaker 1: a lifetime ago? It is? But yeah, frankly it's broadly similar. Uh,
Speaker 1: and you know, and it and it appealed to the
Speaker 1: most likely voters. And this is a this is this
Speaker 1: is an election that's already substantially tightened. I mean, this
Speaker 1: whole idea that Biden is running away with anything is
Speaker 1: uh last month's news you've got. You know, people like
Speaker 1: to talk about real player of politics. Average. The national
Speaker 1: average for Biden now is about seven and a half
Speaker 1: and in the battleground states, uh, it is about four.
Speaker 1: One way to look at that is it's barely above
Speaker 1: the margin of error or two months away from the election. Uh.
Speaker 1: So you know, he can hammer on that and uh
Speaker 1: and appeal to people's feel to people's pocketbooks and their
Speaker 1: fit and their most basic desires and fears about security. Um,
Speaker 1: and he can continue to to to eat into what
Speaker 1: remains of a Biden lead. You know, it was interesting
Speaker 1: to me when I was looking at your notes, Terry,
Speaker 1: that you think that President Trump has a sixty percent
Speaker 1: chance of re election. That does not seem to be
Speaker 1: the consensus. How much pushback do you get that? Oh?
Speaker 1: I get pushback about that all the time. Lisa, and
Speaker 1: I would say two things one three things, but one
Speaker 1: of which I've already said, the race is already tightening,
Speaker 1: kind of moving in that direction. Secondly, the last thing
Speaker 1: that polls are aren't predictive and any any polster would
Speaker 1: tell you that. Thirdly, these polls look at the wrong things. Frankly,
Speaker 1: no disrespect anybody that's doing them, but they're looking at
Speaker 1: the by and large national the national snapshots of registered voters.
Speaker 1: What you will then, and they're already tightening, and what
Speaker 1: you'll start to see is more attention page to state
Speaker 1: by state races of likely voters, and there's a huge
Speaker 1: disparity between registers and the likeliest. That will mean that
Speaker 1: the race tightens even further. The Trump wins, uh, you know,
Speaker 1: and you know turnout here is going to make all
Speaker 1: the difference. And frankly, you know Trump counts an enthusiasm advantage,
Speaker 1: but that enthusiasm advantages is real and uh, and it's
Speaker 1: gonna be hard for Democrats to make that up. Well,
Speaker 1: when you talk about who's going to win the Democrat
Speaker 1: the the presidential race, it's unclear what the market effect
Speaker 1: will be. It is clear that if there is an
Speaker 1: increase intentions between the US and China, that is broadly
Speaker 1: viewed as a market negative. What is President Trump's policy
Speaker 1: that we may hear from Secretary State Mike Compeo tonight,
Speaker 1: especially given the easing and some of the tensions of
Speaker 1: late between the US and China. Uh. Let me say
Speaker 1: two things about that. One, what Pompeo is likely to
Speaker 1: say is, uh, look, you know, only you know, we
Speaker 1: wasted two decades on hoping China would would grow up
Speaker 1: and become a mature member of the Community of Nations
Speaker 1: and you know, and take the w t O obligations
Speaker 1: and others. Seriously, We're clearly past that. And you know,
Speaker 1: but only Trump could stood up to that. Obama and
Speaker 1: Biden were responsible for a decade of that that sort
Speaker 1: of thing. Um. The other thing I would say is
Speaker 1: that markets, I think markets, uh the mids to some
Speaker 1: extent that they tend to think that one bad thing
Speaker 1: is happening with between the United States and China, that
Speaker 1: means that all bad things are are increased. I don't
Speaker 1: think that's true. It remains in the mutual interests of
Speaker 1: the U. S and China to continue to trade and
Speaker 1: continue to say positive things about Phase one even as
Speaker 1: tensions are on the rise between the two nations and
Speaker 1: other geo political matters. Uh. It was the former British
Speaker 1: Prime Minister that noted that the you know, great nations
Speaker 1: have only interests, not friends. It remains in the mutual
Speaker 1: interests of these two countries to trade. They'll continue to
Speaker 1: do that, and they'll continue to say positive things about
Speaker 1: Phase one, which I think is a market But Terry Hynes,
Speaker 1: thank you so much. What we thought we'd do right now.
Speaker 1: Usually you know, it's economic data eight thirty and all
Speaker 1: that is. They have the definitive conversation of the day
Speaker 1: on what we're gonna hear from Chairman Paul. We can
Speaker 1: do that with James Sweeney. He is at Credit sweezy.
Speaker 1: He has been there all of twenty years, which UH
Speaker 1: shocksby as well. But James Sweeney has absolutely turned cautious here.
Speaker 1: I was stunned in his last visit with us how
Speaker 1: cautious he was on the American economic experiment. And we
Speaker 1: get a brief on what Mr Powell needs to do
Speaker 1: James Sweeney. This is always an important speech that's widely understood.
Speaker 1: Inflation will be the topic. How does the Central Bank
Speaker 1: manufacture inflation? Well, I mean they know that they need
Speaker 1: to continue to supply stimulus to the economy and they've
Speaker 1: been moving towards this Framework review, which is likely to
Speaker 1: to signal a tolerance for overshooting inflation. Meaning you know,
Speaker 1: somewhere north of two inflation would not trigger immediate interest
Speaker 1: rate responses from the Fed, sometimes several years in the future.
Speaker 1: So that's really what we expect from them today. In general, though,
Speaker 1: the short term caution is about the lack of a
Speaker 1: stimulus bill, persistent high unemployment, risks of of inflation staying
Speaker 1: lower for longer, and I think the FED is very
Speaker 1: focused on all of these risks, and I think some
Speaker 1: people in financial markets are not. But we will see
Speaker 1: as we go through what's set to be a pretty
Speaker 1: turbulent autumn, whether you know, market and economic data could
Speaker 1: trigger more than just talk from the FED more action.
Speaker 1: I give immense credit folks Olivier Blanchard as tour of
Speaker 1: duty at the i m F now at the Peterson
Speaker 1: Institute for jump starting this discussion. But change what the
Speaker 1: magnitude difference here is different. Olivia Blanchard created a firestorm
Speaker 1: of controversy talking about a goosing of three and even
Speaker 1: four percent inflation. I'm not hearing that from the Fed.
Speaker 1: What are they talking about nudging it up to two
Speaker 1: point oh five or two point one percent inflation? Yeah,
Speaker 1: I think it's in the tens of basis points that
Speaker 1: they would tolerate. I don't think we're talking about three
Speaker 1: core inflation or anything like that. And I mean, the
Speaker 1: difference between headline and core is important because energy prices
Speaker 1: can throw the headline inflation numbers around a lot. But
Speaker 1: I don't think that we're going to see three percent
Speaker 1: core inflation with you know, the set short rate that
Speaker 1: had close to zero um anytime in the future. But
Speaker 1: but what they're saying is that immediately drifting above two
Speaker 1: is not going to prompt immediate interest rate increases. James,
Speaker 1: We've getting We're we've been getting inflation pretty some some
Speaker 1: pretty serious inflation. I'm speechless, uh, tongue tied over how
Speaker 1: much asset prices have inflated, and the fact that we
Speaker 1: hear less and less about this from Federal Reserve officials
Speaker 1: who dismissed that as just a part of how to
Speaker 1: get to a more stable economy. But at what point
Speaker 1: does a fet have to take a look at just
Speaker 1: how much asset prices have increased and the lack of
Speaker 1: any gains that we're seeing necessarily in the economy from
Speaker 1: the regime that led to those higher asset prices. Well,
Speaker 1: that's right, I mean it's it's the lack of attractive
Speaker 1: yields on fixed income assets has squeezed investors into higher
Speaker 1: risk assets like like equities, and you've ended up with
Speaker 1: some strong equity performance and some and some high valuations.
Speaker 1: And as long as you think that inflation risks are
Speaker 1: to the downside, then the set is going to continue
Speaker 1: to continue to signal low rates, which which is supported
Speaker 1: for for equities. Um. But if you look farther route,
Speaker 1: you know, maybe a day will come where financial stability
Speaker 1: risks are triggered by these strong risky assets, or maybe
Speaker 1: a day will come where equities go up so much
Speaker 1: that you know, some economic of triggers a sharp reversal
Speaker 1: in the opposite direction, and then you've got real troubles
Speaker 1: if you've got below average inflation and now you have
Speaker 1: an unfriendly equity market instead of a friendly one. So
Speaker 1: that the FED is really on thin ice here, um.
Speaker 1: Given given where the economy is, and there's another way
Speaker 1: of looking at this story, which is can low yield
Speaker 1: and even lower yields from here create more jobs? What's
Speaker 1: the FED actually doing with improving the labor backdrop? Well?
Speaker 1: I think that if you look at the housing data,
Speaker 1: right now I think there's a clear channel for job
Speaker 1: creation from low rates. It runs through low mortgage rates,
Speaker 1: high housing starts. UM. We have seen some resilience in
Speaker 1: the housing sector, and historically housing has been a sector
Speaker 1: that is quite correlated to to FED decisions and where
Speaker 1: interest rates are. So the FED is helping, but the
Speaker 1: economy has a lot of issues, and a lot of
Speaker 1: sectors are not as directly correlated with with interest rates
Speaker 1: and financial conditions as housing and UM and and and
Speaker 1: because of that, you know, we still have a very
Speaker 1: very high unemployment rate and it's likely not to be
Speaker 1: back down in the comfortable four to five range for
Speaker 1: several years at least. James Sweeney with this is credit sweets.
Speaker 1: We will continue. We welcome all of you on Bloomberg Radio,
Speaker 1: Bloomberg Television worldwide as simulcast John Farrell, Lisa Bryan Witts,
Speaker 1: and Tom Keene. I do want to look at the data.
Speaker 1: Equities haven't moved, bonds of move futures up fourteen down,
Speaker 1: futures up one seventy six, and the yield really breaks
Speaker 1: out of four one point one and the thirty year
Speaker 1: bond that's a solid five basis point. Movies are higher
Speaker 1: yields and lower UH bill note and bond prices as well.
Speaker 1: Dollar weakness this morning, and gold implodes negative eight dollars,
Speaker 1: down a ninety one the ounce as well. James Sweeney,
Speaker 1: I really want to talk about the caution that you
Speaker 1: had last time, and it's certainly something you mentioned the
Speaker 1: fetes watching as well. Where's the unemployment rate right now?
Speaker 1: And you mentioned we're never going to get back to
Speaker 1: four percent? Where are we heading? Well, I mean, I
Speaker 1: think this is still pandemic unemployment. So I think there's
Speaker 1: a lot of businesses whose customers are not showing up
Speaker 1: yet at normal rates, and so the labor demand just
Speaker 1: isn't there. So I think, you know, we're well north
Speaker 1: of ten percent and unemployment. But I think when we
Speaker 1: get the vaccine, when the pandemic is under better control
Speaker 1: and people start returning to hotels and airlines and restaurants
Speaker 1: in in a more normal way, unemployment is going to
Speaker 1: fall very sharply. Um. But I think there's a lot
Speaker 1: of damage done and I don't think it's going to
Speaker 1: fall all the way to five, say next year, even
Speaker 1: in a pretty good outcome for the pandemic. So it's
Speaker 1: going to take a while to heal this economy, and
Speaker 1: then to combine this, James, and you've been so good
Speaker 1: at this over the last fifteen years, you have to
Speaker 1: fold it into wage deflation, the great fear wage disinflation
Speaker 1: or wage inflation. What is your call on wages given
Speaker 1: this crazy environment we're in. Well, I mean, high unemployment
Speaker 1: just can't be for wages um. But in the wage data,
Speaker 1: there's a lot going on at the moment. I mean,
Speaker 1: we've seen a lot of people into a lot of
Speaker 1: people actually taking wage cuts, which which normally doesn't happen
Speaker 1: during during the pandemic. So you've seen some wages actually
Speaker 1: ratchet lower um. In some industries, you may be desperate
Speaker 1: for workers that you can't find and wages may be rising.
Speaker 1: And we're seeing this in consumer goods prices as well.
Speaker 1: UM a increase in variation in prices at the unit
Speaker 1: of a job or at the unit of a specific good,
Speaker 1: but an aggregate. If the economy is running at a
Speaker 1: very low level of demand with low GDP and high unemployment,
Speaker 1: you know the pressure on wages is going to is
Speaker 1: going to be down rather than rather than up. And
Speaker 1: same for for inflation. For a while, what do you
Speaker 1: see as the outlook for younger individuals entering the workforce.
Speaker 1: This has been an increasing area of focus as this
Speaker 1: area has been particularly hard hit. Those entry level jobs
Speaker 1: just have been completely destroyed as people stay home. How
Speaker 1: much will that's this generation back in terms of wages,
Speaker 1: in terms of household creation? Is that factoring into any
Speaker 1: of your estimates right now? Well, I mean, on long
Speaker 1: on from a long term perspective, you have to look
Speaker 1: at those things. I think some of the literature does
Speaker 1: suggest that, UM, losing opportunities in the very early stage
Speaker 1: of your career can be really harmful. So you hope
Speaker 1: that people are finding ways to invest in themselves and
Speaker 1: get some more education and and things like that to
Speaker 1: get them on a good track. But there's no doubt
Speaker 1: that the opportunity is available to new graduates this year
Speaker 1: are going to be abnormally abnormally weak because of the pandemic.
Speaker 1: It's just one of the many painful consequences of this.
Speaker 1: Do you see business investment, Um, it's a business investment
Speaker 1: is soft. Um, it's it's improving from you know, the
Speaker 1: shutdown period, but it's not it's not great. UM. We're
Speaker 1: seeing better results in residential investment, which is which is
Speaker 1: home home by and we're seeing a decent rebound in
Speaker 1: consumption and consumer spending, but business investment, businesses are going
Speaker 1: to be cautious while we're still in the pandemic. So
Speaker 1: even though we have very low interest rates, et cetera. UM,
Speaker 1: I think businesses will wait for clarity and you hope
Speaker 1: that you're going to have a big pick up investment
Speaker 1: over the next twelve to eighteen months, but this is
Speaker 1: not the time for it yet, except for in a
Speaker 1: few special sectors. Wonderful James Sweeney, thank you so much.
Speaker 1: The credit sweet Chief economists christ Castman Joines is now
Speaker 1: head of economics for Mr Diamond and JP Morgan. Bruce Casman,
Speaker 1: your note this weekend, I thought was exceptionally good. It
Speaker 1: was a two part note. Let's talk inflation. First. You
Speaker 1: partition between short term supply shock inflation in the medium
Speaker 1: term reality discuss. Okay, So I think what we're gonna
Speaker 1: see on inflation to some degree mirrors what we're going
Speaker 1: to see on growth. We had a horrible collapse and
Speaker 1: activity in the spring, and we're gonna have a surge
Speaker 1: as we go through the spring and summer, led by
Speaker 1: goods producing industries. The combination of that with the supply
Speaker 1: chain disruptions which were already seeing in some place, we
Speaker 1: think it's going to lead to a particularly rapid move
Speaker 1: up in inflation, particularly in goods, and I think the
Speaker 1: US is going to be a big part of this,
Speaker 1: and we're starting to see it, and we think we'll
Speaker 1: see it with the PC report on Friday. However, this
Speaker 1: is likely to be a temporary phenomenon, and as we
Speaker 1: settle into more stable growth, as the price increases for
Speaker 1: the supply side um shock fade, we end up with
Speaker 1: a world where we think we have an incomplete overall recovery.
Speaker 1: We have slack, We have limited tools on the part
Speaker 1: of central banks to really add more stimulus, and we
Speaker 1: think we settle into something lower on inflation, with as
Speaker 1: in the growth side, to split between services and goods
Speaker 1: being particularly pronounced politically and with a collective memory of
Speaker 1: the sixties, Can a central bank, including the Powell Fed,
Speaker 1: can they ignore lumber prices in the short term surge
Speaker 1: and inflation you call for Oh, I think they can,
Speaker 1: and I think the Fed if you go back and
Speaker 1: look at two thousand sant eleven, they did the same thing.
Speaker 1: They've lived through the last decade. Uh, they have faced
Speaker 1: persistent undershoots and inflation. They're committed to trying to get
Speaker 1: inflation off, and I think they're going to be very
Speaker 1: vigilant here in holding the line. However, if we do
Speaker 1: get the fallback, the problem is not that the FED
Speaker 1: can be patient in the face of higher inflation. What
Speaker 1: they can't do is provide much stimulus in the face
Speaker 1: of disappointing low inflation. So, Bruce, when you talk about
Speaker 1: your temporary bump in inflation, give us a sense of
Speaker 1: how much of that is supply versus, you know, a
Speaker 1: real increase or rebound in demand. It's really hard to
Speaker 1: separate those um In fact, if you look at the recession,
Speaker 1: goods pricing did not go down as much food prices
Speaker 1: actually went up. It does feel, given how sharply activity
Speaker 1: felt in those sectors, that there was some supply disruption.
Speaker 1: Supply chains weren't functioning, distributional line weren't working, so there
Speaker 1: was some supply effect. Now what's going to happen is
Speaker 1: those problems are not going away, and now we're getting
Speaker 1: a surge in demand. So I don't think it's easy
Speaker 1: to separate those two I think they're both contributing. I
Speaker 1: think it's in the services sector where it's easier to say,
Speaker 1: while there are some supply side pressures, the weakness and demand,
Speaker 1: the slow recovery there is probably going to be the
Speaker 1: dominant factor in terms of limiting the underlying pickup and inflation.
Speaker 1: But both factors I think are quite important. We're looking
Speaker 1: for the fastest pace a good price inflation globally and
Speaker 1: over a decade. Over the second half of this year, well,
Speaker 1: the second half. The second half of your note really
Speaker 1: is a beautiful exposition about how the economy is going
Speaker 1: to come back, but not come back to where we
Speaker 1: where we knew it. And as you know, I look
Speaker 1: at this almost as is graphically an asome tote. What
Speaker 1: are we coming back to a set lower potential g
Speaker 1: d P, A set lower just vibrancy nominal GDP. What
Speaker 1: are we coming back to? Well, I think the easy
Speaker 1: answer to that is we're coming back to a number
Speaker 1: of challenges. Challenges that have to do with big dislocations
Speaker 1: in some key industries. Challenges have to do with the
Speaker 1: fact that you know, in our forecast where at least
Speaker 1: three or four million jobs short, a year and a
Speaker 1: half from now from where we work before the crisis.
Speaker 1: What's harder to see is the political response, uh the
Speaker 1: economic responses. You know, after the global financial crisis, a
Speaker 1: lot of the problems we've faced were because of the
Speaker 1: reverberations politically, the early tightening in US fiscal policy, the
Speaker 1: European sovereign crisis, So lots will depend on how politics respond.
Speaker 1: A key call we have is we're just not confident
Speaker 1: that policy makers can respond to the challenges of the expansion,
Speaker 1: even though they responded very well to the challenges of
Speaker 1: the crisis. So I think there's every reason to worry
Speaker 1: about potential growth, is every reason to worry about political
Speaker 1: pressures because of inequality and dislocations. But I think it's
Speaker 1: pretty hard to map those specifically, other than recognizing we're
Speaker 1: going to have a pretty incomplete recovery with a lot
Speaker 1: of challenges ahead. So first, do you expect any material
Speaker 1: help out of our friends in Washington, d C. In
Speaker 1: terms of additional round of meaningful stimulus. Well, I'm not
Speaker 1: saying I'm confident, but we still have a view that
Speaker 1: will get something between a trillion and a trillion and
Speaker 1: a half package before the end of September, we already
Speaker 1: will have done some damage by the delay of passing it.
Speaker 1: But I think the key point about US fiscal policy
Speaker 1: is that whether we get a package in September or not,
Speaker 1: the way we're implementing it. The crisis mode was effective
Speaker 1: in getting money in the hands of households, but this
Speaker 1: temporary stop and go type policy is going to be
Speaker 1: very difficult to be successful in terms of managing the
Speaker 1: early stages of the recovery. And I contrast Europe, where
Speaker 1: I think there's a much steadier hand in the way
Speaker 1: policy is being delivered, and that's a big contrast to
Speaker 1: what we saw in the last decade. Fascinating. Bruce Casmin,
Speaker 1: thank you so much for joining us in Shorts, is
Speaker 1: chief economist at JP Morgan as well. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
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Speaker 1: I'm on Twitter at Tom Keane Before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio