Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. Right now, as
Speaker 1: we consider the distance from Cornwall the Brussels, Robert Horbats
Speaker 1: joins us. He's a Tideman Advisor's Ambassador Hormats of course
Speaker 1: his public service to the nation for Republicans and four
Speaker 1: Democrats as well. Ambassador, Thank you so much for your perspective.
Speaker 1: Uh this morning, I want to go back to one
Speaker 1: of the chapters of your wonderful book, The Price of Liberty,
Speaker 1: The First Great Test? What is the first great test
Speaker 1: for President Biden when he meets with Mr Putin? Well,
Speaker 1: he has to demonstrate that the United States is going
Speaker 1: to be much more resolute in resisting various cyber attacks
Speaker 1: that come from Russia or are perhaps sponsored by the
Speaker 1: Russian government. We're trying to sort out which is which,
Speaker 1: but certainly we have been plagued by lots of cyber
Speaker 1: problems coming from that country, either directly through the government
Speaker 1: or indirectly by people on that territory. And these not
Speaker 1: only are disruptive in themselves, but pretend the prospect of
Speaker 1: things getting even worse or escalating, and that can be
Speaker 1: very disruptive to American companies and to the overall American economy.
Speaker 1: We're very cyber vulnerable because we're so connected. Can we
Speaker 1: be cyber offensive? I'm sure we have been. I'm also
Speaker 1: sure that when we do it, we don't say anything.
Speaker 1: And the reason is that we don't want other countries,
Speaker 1: not just Russia and any other country understand how we
Speaker 1: do it, what we're doing, and what our technology is.
Speaker 1: That we certainly have the technology to be more offensive,
Speaker 1: and they know that. And I think that there is
Speaker 1: at least some sense that if they go too far,
Speaker 1: the United States can take action against them, and it
Speaker 1: could be very destructive because they have a weaker economy.
Speaker 1: That the problem is that we're a very connected economy,
Speaker 1: and therefore a lot of things can happen here in
Speaker 1: one area, say electricity, which could shut water supplies down,
Speaker 1: or transit systems down, or energy systems down. So the
Speaker 1: world's in a very precarious place. If we start getting
Speaker 1: into cyber attacks on one another, Ambassador, how much unity
Speaker 1: is there among the G seven, among the G thirty
Speaker 1: in combating cyber attacks together, in working together to make
Speaker 1: sure that networks are up to see speed and protected
Speaker 1: and the information is shared. Well, I would put it
Speaker 1: this way, we have a long way to go. Um.
Speaker 1: There are different countries who were vulnerable into a ways
Speaker 1: as you've seen, some Central and European countries have already
Speaker 1: born the brunt of this, and there is really not,
Speaker 1: I think a collective doctrine of collaboration or of what
Speaker 1: constitutes UH an attack that requires retaliation. The other problem
Speaker 1: is sourcing and energy at what they call attribution in
Speaker 1: this world, and you sometimes don't know where the cyber
Speaker 1: attack actually is coming from or who the perpetrator is,
Speaker 1: so that makes it more difficult as well. But I
Speaker 1: think the vulnerabilities are becoming increasingly apparent and there is
Speaker 1: going to be and there's a NATO is probably the
Speaker 1: vehicle for doing it, um and for getting this together,
Speaker 1: but we don't know as much about how these are done,
Speaker 1: where they're coming from, and we certainly don't have a
Speaker 1: doctrine of specific retaliation for specific kinds of attacks, but
Speaker 1: we know things are getting worse and if want to
Speaker 1: stop them, a we have to improve our defenses, which,
Speaker 1: as you've seen in certain instances, have not been all
Speaker 1: that good. In fact, they have been inadequate. And we
Speaker 1: also need them to know that if they don't deal
Speaker 1: with things that come from their government or from on
Speaker 1: their territory, we will have an opportunity and a will
Speaker 1: to take more action that can be very disruptive to them. Bob,
Speaker 1: there's a question the reason why I asked that this
Speaker 1: is not just about cyber but there's a broader point here.
Speaker 1: Leaving the G seven heading to the NATO summit, there
Speaker 1: was a lot of disagreement about how hard of a
Speaker 1: line to take with China, how hard of a line
Speaker 1: to take with Russia. But my eyes really are on China.
Speaker 1: Given the predominance in the global economy, where are the
Speaker 1: biggest question marks there in terms of getting some sort
Speaker 1: of unified strategy and how to interact with China. It's
Speaker 1: a great question and there is not a clear answer
Speaker 1: because the Europeans are concerned with certain things, certainly Chinese
Speaker 1: trade policy and electoral property protection uh UN level playing
Speaker 1: field that favors China. These of the American companies, but
Speaker 1: the European companies. But the problem is that companies in
Speaker 1: Europe and countries in Europe are very vulnerable. They have
Speaker 1: become very dependent on the Chinese market. That's been cut
Speaker 1: back somewhat, but if they take very tough action against China.
Speaker 1: For instance, German cars, which do very well in China,
Speaker 1: are vulnerable and other German products. UH. The United States
Speaker 1: is in a somewhat different position. The Europeans are not
Speaker 1: so concerned about the strategic strength of China. UH these
Speaker 1: China see the South China see and many of the
Speaker 1: geo political and geo strategic issues in the Pacific that
Speaker 1: we're concerned about don't so much trouble the Europeans. They're
Speaker 1: more concerned about the human rights issues. They're more concerned
Speaker 1: about trade issues. They don't want to all out trade
Speaker 1: war or all out confrontation with China. The United States
Speaker 1: has a lot of geostrategic and geopolitical issues. We have
Speaker 1: a navy there. The Europeans don't, so we have a
Speaker 1: wholly different set of issues. On the strategic side. Were
Speaker 1: similar to them, and we have similar concerns on the
Speaker 1: economic side and the human rights side. So my guess
Speaker 1: is if there's to be some measure of unity, it's
Speaker 1: really in those areas, not in the geopolitical ones. Um
Speaker 1: do We're trying to get them to take a tougher
Speaker 1: line on China, but they are also concerned about their
Speaker 1: economic vulnerability, and they're much more reticent to do back.
Speaker 1: Do we risk, by the way, pushing China and Russia
Speaker 1: closer together? Bob? How strong is that relationship? Well, we've
Speaker 1: already in part done that because it is I mean,
Speaker 1: the Europeans, the Russians, and the and the Chinese have
Speaker 1: had their issues over time. In fact, the first opening
Speaker 1: between the United States and China came because the Chinese
Speaker 1: and we perceived a Russian wreck to China along the
Speaker 1: Assouri River, and there were there were numerous Russian divisions
Speaker 1: on the Chinese border. So it hasn't been a particularly
Speaker 1: comfortable relationship from time to time. But now they're beginning
Speaker 1: to realize that if they want to deal with the
Speaker 1: United States and resist some American pressures, they're going to
Speaker 1: probably have to work together. And that's what they're doing.
Speaker 1: And I do think there is that that has happened
Speaker 1: already and the risk is that it will happen even
Speaker 1: even further. The other thing is that other other countries
Speaker 1: in the middle our field, they don't want to be
Speaker 1: caught like a lot of the Asians. Between the United States,
Speaker 1: I wanted to ask about I wanted to ask about that, Bob.
Speaker 1: The last time I sat on set with Tom Keane
Speaker 1: in person um there was an attempted coup de eta
Speaker 1: on air to one which he uh fought back and
Speaker 1: brushed off pretty quickly. How does Turkey fit into NATO
Speaker 1: right now? I mean, they do have the second largest
Speaker 1: army in the alliance, but they don't really see eye
Speaker 1: to eye with the US. Well, they don't on numerous issues,
Speaker 1: Syria being one of them, Northern Iraq being another, of
Speaker 1: the Kurds being another im that's part of the Syria
Speaker 1: Northern Iraq issue. On the other hand, the Turks are
Speaker 1: extremely valuable. Their bases are very important to the United
Speaker 1: States in in resisting Russian pressure. M the Turks have
Speaker 1: made are Towan and proven have both made efforts to
Speaker 1: try to improve relations, which they have done, but they
Speaker 1: still want and the assurance that the United States is
Speaker 1: going to be there if relations with the Russians deteriorate.
Speaker 1: I think that that question that you've asked is an
Speaker 1: important one. Are we going to be and is Natio
Speaker 1: going to be resolute with Putin moving more and more
Speaker 1: troops up into Central Europe? Not across the border um
Speaker 1: necessarily although, but the troops have gone many troops have
Speaker 1: gone up close to the border. So there's a feeling
Speaker 1: among unease among the NATO countries. I think one of
Speaker 1: the tests in the NATO summit today is going to
Speaker 1: be are we all committed to Article five? And what
Speaker 1: would we do if there were incursions in Article five countries,
Speaker 1: that is to say, NATO countries, and what will we
Speaker 1: do if their incursions into other countries that are not
Speaker 1: in NATO but whose interests are important in the United States.
Speaker 1: So the question of how do you convinced Putin to
Speaker 1: be restrained um is is going to be a critical one.
Speaker 1: And other ways of improving relations with Russia over the
Speaker 1: next several years. The Europeans would like that to see
Speaker 1: that you see that happen. Also, we're out of time,
Speaker 1: we'll do it again, Robert Hormace, thank you so much,
Speaker 1: Ambassador Harmats of the time and advisors and I shoul't
Speaker 1: say enough about his books on the United States and
Speaker 1: our diplomacy. Let's dive into this right now on a
Speaker 1: Monday reset as you reset to get the fourth of July,
Speaker 1: we're watching the affairs of NATO to bring it up
Speaker 1: to speed there. Excuse me, I'm gasping over the length
Speaker 1: of the carpet, uh, to talk of NATO. We had
Speaker 1: the photo shoot, we had the great meet and greet
Speaker 1: that looks sort of Hollywood is to say the least.
Speaker 1: And maybe now we go into individual discussions UH to
Speaker 1: be had in NATO bilaterals as they call him. The
Speaker 1: President meets with Mr Putin Mr Putin out on NBC
Speaker 1: UH in the last number of hours, making for some
Speaker 1: very tough language there on how he sets up his
Speaker 1: meeting with the President of the United States. Tough language
Speaker 1: down from Brian Nick of now Vine as we try
Speaker 1: to get out of our way in the market. Brian,
Speaker 1: how do you frame and I mean New Vine is
Speaker 1: known as a buy house, but you do a lot
Speaker 1: of equity as well, how do you frame the mystery
Speaker 1: of Q three in Q four earnings? Yeah, we're actually
Speaker 1: just starting to write about this for a major outlook
Speaker 1: and we want to get out here is how how
Speaker 1: are things going versus how is the market expecting them
Speaker 1: to go? So the first half was all about exceeding expectations,
Speaker 1: earnings beating expectations, economic data beating expectations, vaccinations and the
Speaker 1: vaccines themselves being more effective and more widespread and distributed
Speaker 1: than expected. I think now we're getting to this point
Speaker 1: where the markets and the economy overall are starting to
Speaker 1: just merely meet expectations. And that's why you've seen a bit,
Speaker 1: I think of a of a tapering back in the tenure.
Speaker 1: I think you've seen a bit of a flattening out
Speaker 1: in terms of the pace of increases in the equity markets,
Speaker 1: and about the pace of sort of the narrowing and
Speaker 1: spreads and the credit markets. Everything has sort of come
Speaker 1: to a not quite a crawl, but maybe something you know,
Speaker 1: asymptotically approaching some equilibrium level until we get new news.
Speaker 1: How is the second half of the year going to go.
Speaker 1: I think obviously what we're expecting is fewer surprises then
Speaker 1: we've gotten in the last couple of quarters from earning season,
Speaker 1: and that probably has you know, some some relation to
Speaker 1: what's going on in the bond markets as well. With
Speaker 1: the tenure having come often with the fat I think
Speaker 1: it's expected to remain quite dubbish on June. I think
Speaker 1: in the June meeting, I think if they say anything hawkeys,
Speaker 1: it will be a mistake. So, Brian, give us the
Speaker 1: distinction between successful and beating expectations and disappointing expectations. Is
Speaker 1: it companies that have pricing power that can raise prices
Speaker 1: on consumers to meet some of the supply chain disruptions
Speaker 1: and the higher commodity prices, or is it simply being
Speaker 1: big tech and everyone eating an iPhone. Yeah, that's certainly
Speaker 1: the pattern we're used to. Right when they were the
Speaker 1: world is sort of decelerating that sort of text moment
Speaker 1: to shine, and every time you've seen interest rates come
Speaker 1: back at the same time as earnings have started to
Speaker 1: decelerate back or maybe not beat as reliably, that's been
Speaker 1: a really good time to be in tech. And so
Speaker 1: we've been pretty neutral between the the ultracyclical deep value
Speaker 1: and then the sort of the higher growth defensives. We're
Speaker 1: kind of spread out across the board there because again
Speaker 1: we're obviously, you know, leaning into the uncertainty of bit
Speaker 1: but also looking for a pretty um, you know, sharp
Speaker 1: and and noticeable deceleration in economic out in the US. Overseas, though,
Speaker 1: I think we're still waiting for peak economic growth. We're
Speaker 1: waiting for peak growth in Europe, the UK, later in
Speaker 1: the eur Asia and emerging markets as they get themselves vaccinated.
Speaker 1: So there could be a bit of a rotation here
Speaker 1: as investors look for where are we still seeing the
Speaker 1: news being expectations? They could be looking outside the United States? Brian,
Speaker 1: are you concerned it all here? I guess about the
Speaker 1: inability to I guess properly forecast some of the economic
Speaker 1: trends out there, We're starting to see a lot more
Speaker 1: sort of uh, I guess surprises, if you will, at
Speaker 1: least as far as what a certain economists and certain
Speaker 1: strategies on the street are expecting with regards something to
Speaker 1: the economic data points, not only here in the US,
Speaker 1: but really overseas as well. Do you think that that
Speaker 1: could end up creating a little bit more volatility as
Speaker 1: we go forward. I think certainly outside the US we're
Speaker 1: still seeing most of the data coming in better than expected.
Speaker 1: I think if you've got an economic model that's worked
Speaker 1: for the last seven recessions. It probably didn't work very
Speaker 1: well for this one because more like a light switch
Speaker 1: getting turned off and turned back on. So most of
Speaker 1: the data, especially with all the stimulus, with the back
Speaker 1: and nations being is completely you know, unique variable to
Speaker 1: this recession. I think that has caused a lot of
Speaker 1: the economy economic forecasting to be you know, too low.
Speaker 1: And I think we're starting to see that overseas more
Speaker 1: as well. In the US, we've actually seen the surprise
Speaker 1: indexes that we track UM coming back down to close
Speaker 1: to neutral UM. So it's this is the housing market is,
Speaker 1: you know, showing signs of maybe just cooling off just
Speaker 1: a bit. Consumer is not gonna be as hot without
Speaker 1: the stimulus moving forward, it should be easier to forecast
Speaker 1: these things once we get all these kind of strange
Speaker 1: and unique variables out of the way. Brian, the calculus
Speaker 1: off of pre pandemic is standard and pours five undered
Speaker 1: up thirty sort of a blended bond event up three percent.
Speaker 1: You made the coupon and a tenC weens bit of
Speaker 1: total return as well. Are people worn out with fixed income?
Speaker 1: And I say this with immense respect with what Nouvine
Speaker 1: invented across America in the packaging of unit trust. Are
Speaker 1: we worn out from bond returns? Well, I think what
Speaker 1: we're telling clients is that, you know, you should be
Speaker 1: diversifying into higher yielding or just non correlated parts of
Speaker 1: the fixed income market, because whether or not interest rates
Speaker 1: move up from here, it's gonna be tough to make
Speaker 1: that three and a half percent again over the next
Speaker 1: year with a traditional bond portfolio, given how low fields
Speaker 1: have gotten and if they move, if they're moving higher,
Speaker 1: it's gonna be even tougher to do that, as we
Speaker 1: expect they will over the next year, two years, three years, UM.
Speaker 1: So what we're looking to, you know, set people up
Speaker 1: with instead is, you know, things like the high yield
Speaker 1: part of municipal bond market, emerging market credit where we
Speaker 1: don't think there's value, and anything that's sort of less
Speaker 1: correlated to rising rates or less susceptible to rising rates.
Speaker 1: So anything like in the loan area, senior loans, floating
Speaker 1: rate securities where you could be building in a little
Speaker 1: bit more protection against that that rises and rates that
Speaker 1: ends up knocking a lot of things off the board.
Speaker 1: Brian Nick, thank you so much with Levine this morning,
Speaker 1: their chief investor strategist. Right now on American politics X
Speaker 1: we go granular with Gregory Vellier. He has a tough
Speaker 1: life to the south of Switzerland, up in the Alps,
Speaker 1: lost with some Saint Bernard somewhere on his way to Milan.
Speaker 1: He is leading the way to American tourism in Europe. Greg,
Speaker 1: very quickly, here should Americans travel to Europe? You're leading
Speaker 1: the way. If you had if you've had your shots,
Speaker 1: if you have been tested recently, yes, Okay, we'll leave
Speaker 1: it there, Greg, Let's go. There's too much going on.
Speaker 1: I want to go to a great NPR thing I
Speaker 1: heard on Tennessee, which is a distance between Memphis and Nashville,
Speaker 1: where the Democrats of Memphis, the Democrats of Nashville, and
Speaker 1: the fifth and ninth districts get jerrymandered out in this
Speaker 1: cost the Democrats the House. How many of those battles
Speaker 1: are there out there now? To give a speaker Pelosi
Speaker 1: some serious angst. If forced to make a wager today, Tom,
Speaker 1: I think the House falls to the Republicans. In history
Speaker 1: would indicate it. Three district thing would indicate it. Some
Speaker 1: important Democrats have announced their resignation. I think the Republicans
Speaker 1: are favored. The Republicans are favored. What kind of Republican
Speaker 1: House would it be? Would it be fragile and of gridlock?
Speaker 1: It wouldn't be fragile. I think that McCarthy is going
Speaker 1: to have his hands full with people who are not
Speaker 1: don't owe him anything, but I think you'd get gridlock
Speaker 1: to Tom in the last two years of Biden's first term. Yeah, Lisa,
Speaker 1: this is really important. The first real conversation we've had
Speaker 1: about a majority GOP in the House. Yeah. The idea
Speaker 1: here of what happens if the Democrats can't go it
Speaker 1: alone and how much urgency is it behind is there
Speaker 1: behind them to get something done before mid terms? Greg,
Speaker 1: what is your sense of how likely it is that
Speaker 1: we see some sort of deal, whether bipartisan or partisan,
Speaker 1: by next year. Given all of the hurdles and the
Speaker 1: divisions within the Democratic Party, I think only one of
Speaker 1: the three, Lisa, you'll get something on infrastructure, It's sure
Speaker 1: as heck isn't going to be two point to five trillion.
Speaker 1: It will be much much less. The other two are
Speaker 1: in trouble. The two trillion for social programs is on
Speaker 1: life support. And then finally the third one, a big
Speaker 1: tax hyde I think is also on life support. There
Speaker 1: might be a little on the very wealthy and big corporations,
Speaker 1: but grandiose tax hype that Biden wants, I think is
Speaker 1: in real trouble. And meantime, there does seem to see
Speaker 1: some unity when it comes to Republicans and Democrats on
Speaker 1: the international strategy, particularly with respect to China. And I'm
Speaker 1: wondering whether the President Biden's tour internationally this past couple
Speaker 1: of weeks really gives lights how far apart the US
Speaker 1: has gotten from European allies when it comes to what
Speaker 1: exactly they should do with respect to China. I think
Speaker 1: Biden sort of got what he wanted from our allies
Speaker 1: on China. I think we are demanding more transparency on
Speaker 1: the virus, we are demanding that they treat their dissonance better.
Speaker 1: We're demanding that they stopped hacking into our companies. So
Speaker 1: I think on a lot of these key issues, there's
Speaker 1: not a lot of space between US and European allies
Speaker 1: were all united in opposition to China. Right now, do
Speaker 1: you think those greg that some of those allies have
Speaker 1: the same cushion, the same wiggle room. I guess to
Speaker 1: push back against China in the way that maybe the
Speaker 1: US has good point. I think the US is more
Speaker 1: adamant the Western Europeans have other issues, including Putin, of course,
Speaker 1: but I do think that again, Biden got into communicate
Speaker 1: what he wanted. He didn't get everything. We still can't
Speaker 1: decide what we're gonna do with Cole. He and Trudeau
Speaker 1: did not agree on opening up the border with Canada.
Speaker 1: But I'd say the first part of this trip has
Speaker 1: been a great public relations success. I think Biden's numbers,
Speaker 1: his job approval numbers are headed higher. Do you oh so,
Speaker 1: do you think, though I guess some of the international
Speaker 1: gains that he maybe making the international stage, that that
Speaker 1: actually translates to the real people on the ground here
Speaker 1: in the US with regards to his popularity and the
Speaker 1: likelihood that they may vote for him or Leasa's party. Again,
Speaker 1: Oh fearless forecast. I think within a week or two,
Speaker 1: Biden's numbers will be a little over six positive. That
Speaker 1: gives him political capital. He's gonna need it to get
Speaker 1: much done on infrastructure. I think we're several weeks away
Speaker 1: from ironing out any kind of deal on infrastructure, so
Speaker 1: he needs that high approval number to help his cause. Greg.
Speaker 1: One final question here, we've got to get back to
Speaker 1: the markets and what we're seeing at NATO is well.
Speaker 1: In this political Maelstrom, we seem to be back to normalcy.
Speaker 1: Can you say that that Mr Biden has dragged us
Speaker 1: back to a diplomatic and domestic normalcy or is the
Speaker 1: jury still out? It's a huge point, Tom, and I
Speaker 1: think the answer is yes. You know, whether it was
Speaker 1: Macrone or Merkel, they all pretty much agree the US
Speaker 1: is back. There was a good will, good spirit between
Speaker 1: all the leaders. Obviously the Putent meeting isn't going to
Speaker 1: go great, but I think with our allies that a
Speaker 1: sense that after these four horrible years, things are are
Speaker 1: returning to normal. Very good, Gregg, thank you so much, greatly,
Speaker 1: greatly appreciated. This morning. Mr val joining us from the
Speaker 1: Alps of Switzerland on his way to Italy, which is
Speaker 1: maybe the best news we've said in eighteen months. Uh,
Speaker 1: let's get right to Michael Darta, MKM partners here to
Speaker 1: set up the economic week and he joins us from
Speaker 1: an island somewhere vicinity south of Cape Cod. Michael Darta,
Speaker 1: Martha's vineyard. You're living it out there. Wages, lack of labor,
Speaker 1: lack of housing. It's a real time microcosm of what
Speaker 1: we've got worldwide. Are we gonna see wages rise and
Speaker 1: stay elevated? Well, Tom, we are seeing them rise, and
Speaker 1: certainly out here on the vineyard you can see these
Speaker 1: supply side disturbances that have been holding back job growth
Speaker 1: over the last few months. We're way out in the
Speaker 1: westerly sort of a remote part of the island. They're
Speaker 1: only a couple options in terms of restaurants where we are,
Speaker 1: and none of them are open for indoor dining. And
Speaker 1: it's not because of COVID, it's because they cannot find
Speaker 1: employees staff, and so it's essentially a takeout situation where
Speaker 1: you can sit down there with no staffy. Michael, get
Speaker 1: out the grill, play the Gorilla album from James Taylor
Speaker 1: and move forward. Okay, let's look at the national situation now,
Speaker 1: Michael Darda, do you believe in a sustain g d P?
Speaker 1: I mean, looking at the top level and linking a
Speaker 1: nominal GDP to where we are. Do we misjudge the
Speaker 1: sustainability of this economy to Boom? I think that's exactly
Speaker 1: what's happening. Tom We are in a boom. There are
Speaker 1: some supply side dislocations that are a bit confusing, but
Speaker 1: I think grow this going to be quite strong, well
Speaker 1: above potential next year. And that gets us to this
Speaker 1: question about inflation and whether it's temporary or potentially more permanent.
Speaker 1: Some of these price price spikes are going to be temporary.
Speaker 1: You're not going to see used car prices going up
Speaker 1: seven or eight percent every single month. But there are
Speaker 1: other prices that are stickier, that are slower moving, that
Speaker 1: haven't even gotten going yet, that we could see start
Speaker 1: to move next year if we stay in this really
Speaker 1: robust nominal GDP environment. Milton Friedman posited the relationship that
Speaker 1: you know, monetary policy eases first, so money gets going
Speaker 1: within a few quarters, you see output move, and then
Speaker 1: in terms of the lag on inflation, inflation is backward
Speaker 1: looking and slow moving most of the time, and that
Speaker 1: could be a few years. And we're already seeing inflation
Speaker 1: from these supply side shocks. But the demand side element,
Speaker 1: I think is going to be a bit more persistent
Speaker 1: than widely expected. Lisa, that is the first time and
Speaker 1: the three of the people's Republic of Martha's Vineyard. That
Speaker 1: you've heard the name Milton Friedman mentioned on the Grand
Speaker 1: Island never happened before. All right, thank you for the
Speaker 1: Bloomberg exclusive, Mike Darna. We appreciate the the mention of
Speaker 1: Milton Friedman on Martha's Vineyard. Going forward, how do we
Speaker 1: know though, this idea of sticky inflation? When will we know?
Speaker 1: Given the fact that people have pointed to wages and
Speaker 1: we see wages going up, but people even dismiss that
Speaker 1: as transitory. Yeah, no doubt about it. Well, you know,
Speaker 1: we know these flexible prices are rocketing and those are
Speaker 1: going to be the first to respond, but they will
Speaker 1: respond both to supply side and demand side shocks. The
Speaker 1: stickier prices um within the core tend to be more
Speaker 1: slower moving. And you have a lot of monetary policy
Speaker 1: officials now that are in the temporary and transitory camp
Speaker 1: looking at median trimmed mean prices for these different indexes,
Speaker 1: whether it's a median prices for the CPI or the
Speaker 1: trimmed mean for the PC deflator. So we're getting a
Speaker 1: bit into the weeds. But these are slower moving up
Speaker 1: price indices that you know, we'll tend to respond over time,
Speaker 1: and so those areas I think next year, if they
Speaker 1: start to get moving along with higher inflation expectations, then
Speaker 1: that that's that's going to probably get the Feds attention
Speaker 1: in a way that some of these price increases this
Speaker 1: year have not. Well, let's just zoom out a little bit.
Speaker 1: The balance of risks right now, is it too much
Speaker 1: higher yields or frankly to lower yields and poorer performance
Speaker 1: and equity markets. Should the reality of slower growth actually
Speaker 1: set in after this inflationary pump, Yeah, I think the
Speaker 1: risk is to higher yields From where we are right now.
Speaker 1: Our forecast for year end is two percent and the
Speaker 1: tenure treasury so recently, you know, we ran up to
Speaker 1: the one seventies in late March and we've pulled back.
Speaker 1: That pullback corresponded perfectly to a few months disappointing job
Speaker 1: gains that we were seeing pressure on wages, pressure on
Speaker 1: ours work. So these supply side disturbances holding back job growth.
Speaker 1: So if we see job growth accelerating towards those seven
Speaker 1: figure thresholds, and then I think you're gonna see bond
Speaker 1: yields moving moving back up towards you know, towards the
Speaker 1: highs of the year, and then potentially even higher. That's
Speaker 1: our view. You know, obviously the market will decide, and
Speaker 1: the market has spent going the other way on yields
Speaker 1: for the last couple of months here. But I think, um,
Speaker 1: you know, that's really what turned the tide. I think
Speaker 1: you had a lot of barish sentiment in the bond
Speaker 1: market and it just took a couple of weeker than
Speaker 1: expected readings on jobs to to trigger a rally. And
Speaker 1: I do think that will reverse over time if job
Speaker 1: growth accelerates, as some of these supply side pressures ease up,
Speaker 1: and we can go through what those are. But that's
Speaker 1: our view. Yeah, there's certainly a lack of consensus right
Speaker 1: now with the way things are being priced. Maybe you
Speaker 1: can go through some of those additional pressures here. Particularly,
Speaker 1: it's the backdrop of whether there is I guess distortions
Speaker 1: in this market by FED policy and whether the data
Speaker 1: themselves maybe leads to further distortion, no doubt about it.
Speaker 1: So on the job growth angle, we have some issues
Speaker 1: from extended unemployment benefits and so you know that's increased
Speaker 1: the reservation wage, the so called wage that would call
Speaker 1: someone um, you know, off the couch or you know,
Speaker 1: waiting at home for a better opportunity to get back
Speaker 1: involved in the labor market. There's also been some hesitation
Speaker 1: on the part of the public in terms of risks
Speaker 1: to you know, interfacing with the public. I think those
Speaker 1: will be easing back now as a bigger percentage of
Speaker 1: the population is vaccinated month over month over month, and
Speaker 1: we've had a problem with schools being closed, in parents
Speaker 1: dealing with issues with respect to childcare. So all of
Speaker 1: those things should be improving over the course of the months. Head.
Speaker 1: I mean that we already have half the governor scaling
Speaker 1: back the jobless benefits and then um, you know, these
Speaker 1: will start to roll off completely in the fall. Schools
Speaker 1: are reopening, and we're doing pretty well on the vaccinations,
Speaker 1: and so I think a lot of these issues are
Speaker 1: going to receive that you know, that have been holding
Speaker 1: back job growth, and we are accelerating now on job gains,
Speaker 1: and so we're getting closer to the FED starting to
Speaker 1: talk about think about talking about and then start talking
Speaker 1: about talking about the taper. Yeah, that's definitely gonna be
Speaker 1: a lot of talking. But so all right, then that's
Speaker 1: the circle back then, Mike two. I guess then the
Speaker 1: wage issue here and the idea here that some of
Speaker 1: the issues that we're having right now in the labor
Speaker 1: market are causing an increase in wages. I guess that's
Speaker 1: a good thing, depending on what side of the fence
Speaker 1: you sit, But there's some concern here that that is
Speaker 1: definitely I guess the sticky part of the inflation debate
Speaker 1: right now, and that even if we do get some
Speaker 1: sort of right sizing in the labor market, those wage
Speaker 1: gains are still going to be there. Yeah. I think
Speaker 1: they're still going to be there, just because this is
Speaker 1: a booming nominal demand backdrop, and so we had a
Speaker 1: huge and sudden collapse in the economy last spring. Nominal
Speaker 1: GDP since then has been growing at an eighteen point
Speaker 1: five percent annualized rate. So all nominal magnitudes should be,
Speaker 1: you know, should be moving up pretty rapidly, and wages
Speaker 1: are certainly a part of that. There a sticky part
Speaker 1: of it, um But yeah, I think these wage increases
Speaker 1: are going to stick because the labor market is going
Speaker 1: to be tightening month after month, and you've got record
Speaker 1: job openings, of record quit quits rate, a lot of
Speaker 1: these leading indicators like first time jobless claims collapsing, you know,
Speaker 1: very bullish for a tightening labor market and suggesting the
Speaker 1: face probably a bit behind the curve here, Michael. The
Speaker 1: money question here, and all the time that you and
Speaker 1: I have gone back and forth on this is does
Speaker 1: the geometry we learned still worked? And if we go
Speaker 1: to you know, Edwinninski and others studying the I S
Speaker 1: L M function of Hicks from years ago, does that
Speaker 1: traditional geometry work now? Or do you just anticipate at
Speaker 1: some point out there we'll get back to what's in
Speaker 1: Michael Spencer's textbooks. Now. I think that, you know, I
Speaker 1: think the basic models can can help us think about shocks.
Speaker 1: You know, we wrote about that last year. But the
Speaker 1: essence of where we started with this Milton Friedman idea
Speaker 1: that you know, monetary policy operates with lags, and then
Speaker 1: you first see an easy show up and output, and
Speaker 1: then you know inflation follows because it's stickier, intends to
Speaker 1: be a lagging indicator. I think we already see that
Speaker 1: playing out, and that would suggest more permanence to some
Speaker 1: of what we're seeing, rather than this very temporary transitory,
Speaker 1: you know, base effect type nature, which is what the
Speaker 1: official company line, if you will, is right now. And
Speaker 1: of course, Michael, what is so important is that Martha's vinyard.
Speaker 1: There is only one one metric for summer pricing, and
Speaker 1: that's a price of pro pro pane for the grill.
Speaker 1: Folks have no idea what it costs out on these
Speaker 1: islands to get pro pane. For those of you on
Speaker 1: radio and action photograph of Michael Darta, this grill Lisa
Speaker 1: went to the moon. Is that that's not what I'm
Speaker 1: really socks and flip pops? Is that a thing, Michael
Speaker 1: I liked? You guys get that photo. That is Uh,
Speaker 1: it's coming from inside the house. Michael Darta will be
Speaker 1: out for dinner tonight. Thank you so much. Mr Darta
Speaker 1: from m Camp Partners holding court out on Martha's vineyard
Speaker 1: right now. And we have been looking at the Mayor's
Speaker 1: race in New York. For those of you worldwide, Uh
Speaker 1: it is there's like three Republicans on the island of Manhattan.
Speaker 1: Scott Stringer knows all of those Republicans. But this is
Speaker 1: a Democratic primary, and it is a primary that has
Speaker 1: been contentious. Scott Stringer, Thank you so how much for
Speaker 1: joining us obviously obviously his leadership in Manhattan politics and
Speaker 1: of course his Public Services controller as well. Scott, I
Speaker 1: want to get the obligatory questions out of the way.
Speaker 1: You have been accused of sexual harassment. It has turned
Speaker 1: turned your candidacy upside down. What do you do now
Speaker 1: to move forward? Should you be dropping out and giving
Speaker 1: a powerful endorsement to a progressive a liberal or do
Speaker 1: you do you move on to the primary? Well, look,
Speaker 1: these allegations literally as far back as thirty years ago,
Speaker 1: and uh, it is unfortunate. It has had a big
Speaker 1: impact on the campaign. But look, you know this is
Speaker 1: not an easy venture when you run from there of
Speaker 1: New York City and you know people are gonna come
Speaker 1: at you. But I have full faith in the voters
Speaker 1: of this city who know my thirty year record, they
Speaker 1: know the kind of person I am. Just the other day,
Speaker 1: three women progressive signed a letter and support of my candidacy.
Speaker 1: So look, it's a challenge. But when people look at
Speaker 1: the inconsistencies, when they file the facts, uh, they have
Speaker 1: been the same person. They've always knew me. In terms
Speaker 1: of endorsing another candidate, I'm in the race. And while
Speaker 1: my supporters can rank me first, they have an opportunity
Speaker 1: under rank troyes voting to rank another candidate second. But
Speaker 1: I have no plans to make an endorsement. But you
Speaker 1: know that could change in the coming days. Who I
Speaker 1: would like to see as second choices candidate. It's something
Speaker 1: I was thinking about over the weekend, and uh, we'll
Speaker 1: see how the next few days play. But right now
Speaker 1: I'm running to win. The support has been really strong,
Speaker 1: and I just want to say to you, I don't
Speaker 1: think there are three Republicans in Manhattan. I think there
Speaker 1: are two. Okay, well there's two, and we'll we'll do
Speaker 1: Ken Prue. It was the third run until he until
Speaker 1: he passed away. Scott Stringer, look at the moment, and
Speaker 1: my I just still down this campaign and folks, for
Speaker 1: those of you nationwide, it has been a vigorous It
Speaker 1: is about democracy in New York City, even if it's
Speaker 1: one party. In Scott Stringer, it's devolved down to public
Speaker 1: safety and to the police. I want you to stay
Speaker 1: your approach to this divisive nature of the police in
Speaker 1: this nation and particularly the NYPD. Well, look, there's no
Speaker 1: question that people are concerned about public safety, and they
Speaker 1: should be. I'm a kid who grew up in this
Speaker 1: city in the seventies when they were two thousand murders
Speaker 1: a year. My mother used to tell my brother and I,
Speaker 1: when you get on the A train in Washington Heights,
Speaker 1: sit in the conductor car because that was the only
Speaker 1: safe car. So I have lived my life through that lens. Obviously,
Speaker 1: we've come a long way in terms of safety, and
Speaker 1: I think the next mayor has to make sure the
Speaker 1: police are finding the people who are doing the shootings
Speaker 1: and tackle the violence in the streets. There's no question
Speaker 1: about that. But also we have to think about a
Speaker 1: police force that is less about over policing in black
Speaker 1: and brown communities, more investment in kids to keep them
Speaker 1: away from the criminal justice system. We're seeing around the
Speaker 1: country that when you were spawn with mental health professionals
Speaker 1: to mental health challenges on the street, the results are better.
Speaker 1: So the next mayor is going to have to be
Speaker 1: able to keep the street safe and also make sure
Speaker 1: that we have a policing system that is fair and just.
Speaker 1: I think I'm qualified to do both given my thirty
Speaker 1: years of experience and government, and I'm looking forward to
Speaker 1: that challenge alright, so certainly a divisive issue Scott, but
Speaker 1: probably more divisive and at least more disparity with regards
Speaker 1: to the policy positions that I've seen amongst the Democratic candidates.
Speaker 1: Here is their position here on education and specifically how
Speaker 1: you make these investments, if you make investments at all
Speaker 1: in our public school systems, in our charter school systems
Speaker 1: for some, but more importantly overall, and making sure that
Speaker 1: a lot of the kids out there are getting a
Speaker 1: fair education. That is going to be one of the
Speaker 1: number one issues facing the city. And become a public
Speaker 1: school parent. I got married late in life. I have
Speaker 1: a nine year old and a girl. They're in public school. Look,
Speaker 1: I I'm a failed remote learning teacher. They really struggled.
Speaker 1: It was no joke. Our wonderful children really got hit hard.
Speaker 1: This to Blasia. Administration really didn't prepare for the endemic,
Speaker 1: and I worry that they haven't prepared post pandemic. But look,
Speaker 1: I believe that we need a mayor who's going to
Speaker 1: direct the issues facing kids, mental health challenges, more tutoring,
Speaker 1: direct aid for the kids. And my proposal quite simply
Speaker 1: is to put two teachers in every classroom. K to five,
Speaker 1: because that's what the charter schools do in the private schools.
Speaker 1: It's time to give public kids, public public school students
Speaker 1: the opportunities to get a first rate education. I'm proud
Speaker 1: apported by the teachers and the principles and secunity professors,
Speaker 1: and I'm the education candidate from theyor Okay, but where
Speaker 1: do you get the resources to do that? The monetary resources?
Speaker 1: And then it almost dovetails with Tom's question before here
Speaker 1: about the approach to the NYPD. There are a lot
Speaker 1: of people that want to see resources may be taken
Speaker 1: out of that column and put potentially in the education
Speaker 1: column here. How do you balance those competing interests. Well,
Speaker 1: the nice thing about electing the city controller mayor is
Speaker 1: actually know the finances of the city. I know where
Speaker 1: the money has been wasted over the last eight years.
Speaker 1: There's no proposal I've put forth that I can't pay for.
Speaker 1: We can put two teachers in every class, some three
Speaker 1: million dollars a year because we're getting record foundation need
Speaker 1: for Albany. We can equalize after school programs for all kids,
Speaker 1: regardless of zip code. That's two hundred million dollars. We
Speaker 1: can actually begin to think about all of these programs
Speaker 1: because budgets are about priorities. So if you don't waste
Speaker 1: money and then money we're receiving from Albany stimulus money,
Speaker 1: we could create real programs that can realize systemic change
Speaker 1: in the system. But I put forth, but I agree
Speaker 1: with you. You've got to know where the money is.
Speaker 1: And no can running from mayor has any understanding about
Speaker 1: the money because they had the opportunity audit and investigate
Speaker 1: the de Blasio City agencies. Is I have, Scott, not
Speaker 1: enough time here, but I've got to get this in.
Speaker 1: Its too important. Your heritage of this island, of Manhattan,
Speaker 1: of New York City goes back to Abraham Beam, your
Speaker 1: support of Murio Koma long ago and far away, and
Speaker 1: particularly your family affiliation to the wonderful Bella Absuck. Folks,
Speaker 1: whether you agreed or disagreed with her, everybody loved and
Speaker 1: admired Bella abb Sug for her energy. What would Bella
Speaker 1: abb Sug say about the mess you're in right now?
Speaker 1: I'll keep fighting, you know, listen, you don't you don't
Speaker 1: begrudge the challenges you face. To be mayor of New
Speaker 1: York City is not a straight line. Look I beat
Speaker 1: Elliott's bit. So when everyone said I couldn't, I'd beat
Speaker 1: Evil Mossquit Faber present when everyone said I couldn't. I've
Speaker 1: never been in a race where I was ahead or
Speaker 1: I didn't have turbulence. I'm a city kid. I get
Speaker 1: knocked down, I get backed up. That was what Absug
Speaker 1: did in her career, and that's what so many people
Speaker 1: before me did. My own mom was a single parent
Speaker 1: running for the city council when I was a little boy,
Speaker 1: and I watched her get knocked around too, and she
Speaker 1: kept fighting right back and alive. Today they'd be like,
Speaker 1: keep your head down, keep moving, and get to the polls.
Speaker 1: That's what they would be telling me. Disgusting or thank
Speaker 1: you so so much for joining us. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and
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Speaker 1: Tom Keene and this is Bloomberg,