Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll 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. Gary, Indiana, fanciest
Speaker 1: city in the world for economics, the home of Joe
Speaker 1: Stiglets and Paul Samuelson. Gary, Indiana went from a pandemic
Speaker 1: nine unemployment down to seven percent unemployment. That indicates the
Speaker 1: inequalities of a strange, strange economy. How great is the
Speaker 1: inequality in this two thousand twenty one Well, the the
Speaker 1: pandemic both exposed and exacerbated UH the inequalities. UH we
Speaker 1: were slated for a very K shaped recovery, with those
Speaker 1: at the top who had done well doing even better
Speaker 1: and those of the bottom doing more poorly. The kind
Speaker 1: of numbers that you cited suggests that that the kind
Speaker 1: of very strong economic Recovery Act that UH was passed
Speaker 1: at one point nine trillion dollars is beginning to have
Speaker 1: some effect and mitigating at least UH some of that
Speaker 1: fear of this very K shaped recovery. It's still there.
Speaker 1: It's still very clear that in terms of wealth, uh,
Speaker 1: those at the top have done very well and those
Speaker 1: of the bottom are more in debt as not only
Speaker 1: the visible debt, but the invisible debt that many of
Speaker 1: them have not been able to pay their rent for year.
Speaker 1: Professor Stiglets, I quote you often and the acclaimed Stiglets
Speaker 1: essays of long ago on the little G that what
Speaker 1: matters is the growth rate. You're acclaimed at this within
Speaker 1: your teaching in many different spheres. Great, can we grow
Speaker 1: our way out of these debts and deficits? Should we
Speaker 1: have confidence and rely on the Stiglets little g to
Speaker 1: help us get out of this fiscal mess? Yes, I
Speaker 1: mean one way of looking at it is just a
Speaker 1: little bit of history. At the end of World War Two,
Speaker 1: our debt GDP ratio and then there was a bipartisan
Speaker 1: consensus led by President Eisenhower Republican, that we ought to
Speaker 1: spend heavily on infrastructure, education, R and D and low
Speaker 1: and behold, in a couple of decades our debt GDP
Speaker 1: ratio was down to under fifty So, yes, you can
Speaker 1: grow out of the high uh levels of depth that
Speaker 1: we have, and you know right now we're expecting to
Speaker 1: have very strong growth for this year. We're actually uh
Speaker 1: most forecasts suggest that at the end of this year
Speaker 1: we will be better than we were projected to be
Speaker 1: before the pandemic. Yep, And Professor, we're talking about the U.
Speaker 1: S economy, of course, we're not talking about other parts
Speaker 1: of the world like India, like Brazil. You've advocated for
Speaker 1: the i P waiver that this administration is pushing through
Speaker 1: at the moment of at least trying to achieve with
Speaker 1: partners over the w t O. Why do you think
Speaker 1: that's the right approach? Oh, well, we this is a pandemic.
Speaker 1: The definition of a pandemic is that it's global, and
Speaker 1: this particular pandemic is a kind of uh uh danger
Speaker 1: because it keeps mutating and we don't want that those
Speaker 1: more a fertile few field for those mutations. Say in India,
Speaker 1: we want this disease to be put under control. We're
Speaker 1: not nowhere is going to be safe until everywhere is safe.
Speaker 1: And that's why, uh, it's really important to get the
Speaker 1: vaccine out there as quickly as possible. Now, a major
Speaker 1: impediment is access to the intellectual property. A whole variety
Speaker 1: of of UH access is needed. The principle has been
Speaker 1: long established. It was established almost two decades ago in
Speaker 1: the midst of the HIV AIDS epidemic. UH. The question
Speaker 1: is how to facilitate it. There's an urgency here and
Speaker 1: that's the waiver is about. It's not changing the basic framework.
Speaker 1: There was always the right to compose three licenses since
Speaker 1: that h A I v as. The question is how
Speaker 1: to happen make it happen quickly, and that's what the
Speaker 1: temporary IP waiver is all about. Doctor Fanci has doubts
Speaker 1: about that. He thinks that this could be an unwarranted,
Speaker 1: unwelcome distraction, that it could take until the end of
Speaker 1: twenty two early twenty three to transfer the technology, and
Speaker 1: then Professor, we'd have to talk about expertise as well.
Speaker 1: The starting position of this debate, everybody agrees with what
Speaker 1: you said. We need to help the rest of the world,
Speaker 1: and even the most selfish individual has to acknowledge there
Speaker 1: is positive externalities associated with that. So before we even
Speaker 1: have this debate, it's done. That's done. We need to
Speaker 1: help the rest of the world. But Professor it's how
Speaker 1: we help them more quickly. Do you acknowledge there are
Speaker 1: other issues that need to be tackled and that this
Speaker 1: could become an unwelcome distraction for the other nations that
Speaker 1: we could could be doing more to loosen up the
Speaker 1: strings our swear. Well, UH, there's something like the talking
Speaker 1: points from their drug companies. But the point is that
Speaker 1: the drug companies in the developing countries emerging markets do
Speaker 1: have a capacity. UH. A barrier to their expanding their
Speaker 1: comp capacity is the concern about intellectual property. You know,
Speaker 1: as several companies in South Africa and in India are
Speaker 1: already producing even the more advanced UH kinds of vaccines,
Speaker 1: let alone the simpler kinds of vaccines, And it is
Speaker 1: really intellectual property that is one of the barriers. Now,
Speaker 1: another barrier that is related to the UH w t
Speaker 1: A waiver is allowing it UH companies to more easily
Speaker 1: export UH their their products. Under the standard w t
Speaker 1: O framework, you can get a composory license that allows
Speaker 1: you to manufacture for domestic use, but it makes it
Speaker 1: more difficult to export. But in today's world of global
Speaker 1: supply chains, where even the ingredients in a vaccine may
Speaker 1: be made in several countries. The barriers to export are
Speaker 1: a major barrier to expand in the world's globe supply.
Speaker 1: So that's why it's imperative to have a temporary waiver
Speaker 1: all these Professor, There is a question though about the
Speaker 1: economic incentive for companies, and yes, there is this concern
Speaker 1: by pharmaceutical companies that this removes the economic incentive. However,
Speaker 1: there are some who argue this could pull them back
Speaker 1: from innovating, from working harder to come up with new
Speaker 1: drugs to combat whatever new disease comes our way. What's
Speaker 1: your response to this, that the economic incentive is that
Speaker 1: much lower for the pharmaceutical companies. That's absolutely nonsense. I mean,
Speaker 1: first of all, let's let's be clear the basic research
Speaker 1: on which UH these vaccines is based was financed by
Speaker 1: the governments around the world. Secondly, the expansion of the
Speaker 1: production and the development of these particular vaccines received enormous
Speaker 1: government support, not only from the United States but from
Speaker 1: other countries. The amounts of money that the drug companies
Speaker 1: are going to get on these vaccines are going to
Speaker 1: be you know, uh enormous returns uh well in excess
Speaker 1: of any normal return. What we're talking about here is
Speaker 1: whether they'll get say, percent return on their investments, uh
Speaker 1: or a thousand percent return. Uh. You know, a thousand
Speaker 1: percent return is enough incentive to make them undertook that research.
Speaker 1: I don't worry about that. Well, there's also a question
Speaker 1: that dovetails into the larger infrastructure spending that Joe Biden
Speaker 1: has proposed. And just quickly, here are you in the
Speaker 1: camp of Janet Yellen that taxes should be raised substantially
Speaker 1: on companies And if so, why is it not just
Speaker 1: sufficient to do deficit spending, which does not seem to
Speaker 1: have had a problem for this country. Well, I do
Speaker 1: agree that eventually we need to correct our distorted tax system, which,
Speaker 1: in terms of the percentage of GDP that is raised
Speaker 1: in taxes, is insufficient to finance uh a century economy
Speaker 1: where you need infrastructure, research, education, a whole host of
Speaker 1: public needs to make a well functioning economic society. Uh.
Speaker 1: We also have a distorted tax system which is less
Speaker 1: progressive than other countries, less progressive than than it should be,
Speaker 1: particularly given the enormous increase in equality over the last
Speaker 1: four decades. UM. So the question is really when of timing, uh,
Speaker 1: you know, basic uh law of economics is uh scarcity
Speaker 1: of resources. Uh and uh we've have we've not we've
Speaker 1: we've underutilized our resources. We have some capacity to expand production,
Speaker 1: but eventually we will reach capacity constraints and then we
Speaker 1: will have to decide how our resources get allocated. And
Speaker 1: that's when the issues of taxes becomes your Maine. I
Speaker 1: won't get about the efficient allocation of resources with a
Speaker 1: Nova laureate, so we'll leave it there, Professor, Columbia Business School, University.
Speaker 1: Professor used the arrogance in the past term, but I'm
Speaker 1: not gonna take it that far. This morning, Okay, we
Speaker 1: halt here on our economics financial investment and try to
Speaker 1: figure out what this vaccination program means. We've gone out
Speaker 1: and found a token grandfather who will actually see his
Speaker 1: grandchildren for the first time since time began. David Blanche
Speaker 1: Flower joins us grandfather hanover, New Hampshire. This morning, Danny,
Speaker 1: the kids show up here in the coming days, absolutely
Speaker 1: first time in fifteen months. There, My grandkids are coming today.
Speaker 1: So you know, things are starting to get back to normal.
Speaker 1: And that's the story we're hearing on the economy, of course,
Speaker 1: but it's you know, but it's slow progress. I mean,
Speaker 1: we've seen fast recovery, but never back to where we
Speaker 1: were before this awful pandemic. Hid I want to go
Speaker 1: back to the distinction of your book, The Wage of
Speaker 1: a Million years Ago, David blanche Flower very simply here
Speaker 1: there's a mystery here to what wage dynamics will do
Speaker 1: as we bring on millions of service sector lower wage employees.
Speaker 1: Are you worried about why rising wages and benefits? Um? No,
Speaker 1: I've been. I've been worried about the lack of rise
Speaker 1: of wages and benefits over the last fifteen years or so.
Speaker 1: And obviously the big puzzle in the data is that
Speaker 1: we've actually seen wage growth which is so strong it
Speaker 1: just makes no sense. So when we saw the unemployment
Speaker 1: rate in the US go from four to fifteen, we
Speaker 1: saw wage growth go from three to eight. And the
Speaker 1: reason for that has been obviously the dropout at the
Speaker 1: low end of the wage distribution. So folks like me
Speaker 1: trying to understand what's happening to wages, it's pretty complicated.
Speaker 1: I was looking at the same data for the UK
Speaker 1: today that the Bank having are going to look at,
Speaker 1: and it's just this confusing. There there's an election going
Speaker 1: on in Scottland. And if you look in Scotland today,
Speaker 1: the unemployer rates Scotland is lower than it was in March,
Speaker 1: and so that the data in the labor market are
Speaker 1: pretty puzzling, and a lot of it has to do
Speaker 1: with furloughed workers bottom of the wage distribution dropping out,
Speaker 1: and in a sense that certainly the argument that I'm
Speaker 1: gonna worry about wages really picking up seems most unlikely
Speaker 1: to me. People talk about shortages, but there's plenty of
Speaker 1: labor out there. There's many firms that haven't recovered and
Speaker 1: probably going to close. So I think adjustment is going
Speaker 1: to be complicated. But the last thing in the world
Speaker 1: I really care about is that wages are going to explode.
Speaker 1: They are not Danny for regulatory reasons. Let's avoid the
Speaker 1: domestic politics talk over in the UK and focus on
Speaker 1: the labor market here in the United States if we can.
Speaker 1: The world has come to you every single Payrolls Friday
Speaker 1: used to come on Bloomberg Radio with Tom and I
Speaker 1: and we talk about the labor market. And you were
Speaker 1: the class clown. You were the guy that came out
Speaker 1: and said, look, you're wrong, You're all wrong, and everyone said, Oh,
Speaker 1: here goes Danny. Danny going at it again. The labor
Speaker 1: market's not tight. Look at where unemployment is. The guy's
Speaker 1: an idiot, Danny. Everyone agrees with you. Now, So I
Speaker 1: want to ask you, when you look at the labor
Speaker 1: market and months and quarters to come, what's the data
Speaker 1: point you'll actually be looking at. If it's not the
Speaker 1: unemployment rate, what is it? Well? Yeah, well, I've certainly
Speaker 1: looked at other measures of labor market slack. So I
Speaker 1: like the employment rate, unlike the under employment rate, but
Speaker 1: particularly parts on for economic reasons. But I think the
Speaker 1: adjustment of wages are really the big story. I mean
Speaker 1: that Shocked just talked about the curd in the US.
Speaker 1: It's a it's a big puzzle. And I think if
Speaker 1: you look back, if you look back at what happened
Speaker 1: in the US between two thousand and fifteen and eighteen
Speaker 1: and what the Fed did in essence, they didn't listen
Speaker 1: to what I said. They said, oh we're going to
Speaker 1: raise rates, there's a full employment coming, wage growth is
Speaker 1: about to come. That didn't happen. J Power has sort
Speaker 1: of given them mere culprat. But I think what we
Speaker 1: have to watch is what happens to wage growth? What
Speaker 1: measures really are there suggesting that the labor market is
Speaker 1: very tight. And I think the story I've said to
Speaker 1: you many times or along period, which other people disagree with,
Speaker 1: was the unemployment can surprise on the low side, and
Speaker 1: basically we should sit and wait and I'll allow the
Speaker 1: economy to adjust. And I think that's where we go.
Speaker 1: So I'm going to really watch wage birth. I got
Speaker 1: to see how it progresses, but I'm gonna watch it
Speaker 1: come down as people come out of furlough, as they
Speaker 1: come out of lockdowns that they've been in, and and
Speaker 1: see and see what recovery comes. But but I think
Speaker 1: we just sit and wait and watch, and that's the
Speaker 1: right strategy of the FED. I listened to j Cal
Speaker 1: I thought he was fantastic, absolutely got it. But if
Speaker 1: you like he's just been saved what I've said over
Speaker 1: the last five years, which people disagree with but essentially
Speaker 1: turned out to be right. You need to understand what's
Speaker 1: happened in the labor market, and that's where the adjustment is.
Speaker 1: But you want to look at multiple indicate and remember
Speaker 1: that the employment rate never has got back to where
Speaker 1: it was in two thousand and eight never did, and
Speaker 1: I think that was a mistake. Most people made it.
Speaker 1: Lots of commentators on Bloomberg I spoke to him anytimes,
Speaker 1: just got it wrong. Well, Danny, There's also a question
Speaker 1: about what policies could materially increase wages going forward, and
Speaker 1: we hear this increasingly from the Biden administration with the
Speaker 1: taxes that he's proposed, as well as the support of unions.
Speaker 1: What policies traditionally in your economic research have effectively raised wages,
Speaker 1: increased productivity, made a fairer labor market goal a tough
Speaker 1: I mean, the first answer is you move towards full employment,
Speaker 1: but also you give incentives for firms to hire people.
Speaker 1: I mean, one of the stories about capital and labor
Speaker 1: is why firms invest in capital is because it's relative
Speaker 1: prices lower, so you try and make the labor price lower. Um.
Speaker 1: I mean the story about unions. I mean, unions are
Speaker 1: fine if you can generate raises in productivity. So I
Speaker 1: think helped to make workers more productive. Help share in
Speaker 1: profits are available, And I think one of the stories
Speaker 1: we have to think about is for a very long
Speaker 1: time firms were able to pay higher wages and chose
Speaker 1: not to and the question is why not they paid
Speaker 1: salaries to executives as on, so you can encourage firms
Speaker 1: to hire people. You've given tax incentives to people, and
Speaker 1: one of the big stories is you can give wage
Speaker 1: incentives to people, earned income tax credits, the kind of thing.
Speaker 1: But essentially you you start to say it's very important
Speaker 1: to have a ship from labor to capital. Perhaps because
Speaker 1: the balance moved to far in one direction, but I
Speaker 1: like the idea moved towards form point and perhaps the
Speaker 1: balance between labor and capital has to adjust. And I
Speaker 1: certainly think the levels of inequality you sound like administration
Speaker 1: is doing. With my friends Janet and CC. You sound
Speaker 1: like a professor from Dartmouth. Danny. Let's cut to the chase,
Speaker 1: and we don't have enough time to get into a
Speaker 1: lecture you want. I earn a classroom up in Hanover,
Speaker 1: New Hampshire, and we're talking about the unique politics of
Speaker 1: the Eiden Democratic Party. How alone is Joe Biden and
Speaker 1: wanting to get back to a labor vision from another time.
Speaker 1: Is it a one off that evaporates when he's gone,
Speaker 1: or is there a real new substance here for a
Speaker 1: new labor vision in Centrist America. Yeah, I mean, I mean,
Speaker 1: I think that's a really good question. I mean, I
Speaker 1: think in a sense that I always thought the last
Speaker 1: decade was the decade of the Central Banker. Maybe what
Speaker 1: we've seen now is a new decade coming of the
Speaker 1: labor commist. Well why do I mean that? Well, Janet
Speaker 1: Yellen labor economists at Central Banker. But basically in her
Speaker 1: in her acceptance speech, talked about the importance of, you know,
Speaker 1: improving the labor monk, improving wages, improving jobs. C. C
Speaker 1: rouse Um, chairman of the Council of Advised, another labor commist,
Speaker 1: members of the Council of Economic obviously labor colms. And
Speaker 1: the recognition is you've got to do something about the
Speaker 1: labor market, not least those people who have been essentially
Speaker 1: left behind. You've got to do something about real wages
Speaker 1: in America, and especially do things about people with high
Speaker 1: school education and high school proper, something about those folks.
Speaker 1: So I think there's a recognition politically, a recognition, but
Speaker 1: in terms of the labor market, we have to do
Speaker 1: something about those people who have not who have not
Speaker 1: benefited from the American dream. And I think the Biden
Speaker 1: administration has recognized that. Look at who they have appointed.
Speaker 1: So my I think Janet's talked a lot about that.
Speaker 1: So I think the new recognition has to be we
Speaker 1: really messed up what happened in the labor market. And
Speaker 1: I think Biden's right, and he's moving in that direction
Speaker 1: and looks like quite a lot of public support for it. Danny,
Speaker 1: the world came to you on the labor market. It's
Speaker 1: great to catch up, Danny Blanche flat downmouth professor of
Speaker 1: economic right now in the dynamics of the market, the
Speaker 1: correlations of the markets, Alanker joins us with Janice. Really
Speaker 1: just a perfect time to talk to him. As you
Speaker 1: know the mathematics of correlation, I would suggest the media
Speaker 1: is pretty naive about its complexities. Discussed the complexities of
Speaker 1: the odd correlation now between yield and equity. Yeah, um,
Speaker 1: that that is. I think you've summed it up in
Speaker 1: my opinion, that that correlation is the largest riff that
Speaker 1: we believe investors face. And why I say that is
Speaker 1: if you think about why these balanced portfolio, say these
Speaker 1: strategic fifty fifty portfolio, the strategic sixty portfolio has done
Speaker 1: so incredibly well over the last forty years. Has everything
Speaker 1: to do about correlation. Um. Every single time equities over
Speaker 1: the last thirty years has suffered a significant loss, bonds
Speaker 1: have stepped up to help offset that loss. So that
Speaker 1: correlation in recent times and thirty years is in a
Speaker 1: long period of dabt uh um. That correlation in recent
Speaker 1: times has been extremely negative. And the correlation I'm talking
Speaker 1: about is the downside correlation. Now is it an equilibrium
Speaker 1: or is it too good to be true for bonds
Speaker 1: a to always hedge or ensure against equity risk and
Speaker 1: be at the same time for bonds to yield tremendous
Speaker 1: positive carry. Most would say that's too good to be
Speaker 1: true because we all know insurance costs money. Insurance doesn't
Speaker 1: come for free. So the past thirty years was an
Speaker 1: abnomen Was it an anomaly? Um? If you look going
Speaker 1: all the way back to the eighteen fifties, eight six,
Speaker 1: that yeah, Unfortunately a lot of it, well unfortunately a
Speaker 1: lot of us. I mean, it's a good point. A
Speaker 1: lot of us don't remember periods of time where the
Speaker 1: correlation between bonds and equities was not negative, where bonds
Speaker 1: failed to diversify equities. But that was the norm, right,
Speaker 1: And this is having ishe, And I mean, it's so
Speaker 1: important to get away from the assumed exactly. And then
Speaker 1: that's that's the complexity when it comes to correlations. And
Speaker 1: just a quick empirical point which I think you might
Speaker 1: find fascinating a lot of listeners might find fascinating. Ignoring
Speaker 1: the period from night from the two thousand's to now,
Speaker 1: the average returned to fixed income when equity suffered a
Speaker 1: monthly return worse than three percent, So worse than minus
Speaker 1: three percent was actually minus one percent, so that tail
Speaker 1: correlation between bonds and equities was actually positive. Bonds did
Speaker 1: not diversify equity draw down risk. And that makes perfect
Speaker 1: sense if you're collecting yield and gaining risk premium by
Speaker 1: holding bonds. Bonds shouldn't act as a hedge against equities
Speaker 1: each and every time, um and and so going forward,
Speaker 1: the resiliency of these balanced portfolios, of these strategic portfolios
Speaker 1: has to be questioned, um which brings us to to
Speaker 1: a very difficult period of time for acid owners. What
Speaker 1: do you do, all right? Ask, so, now that the
Speaker 1: winter skiing season is coming to an end, your portfolio
Speaker 1: managers are actually coming back to the office, is what
Speaker 1: are you telling them to do right here and now.
Speaker 1: As we look at markets that are rich by many measures,
Speaker 1: that have had a great run off the bottom, what
Speaker 1: are you suggesting they think about in their portfolios? Great question.
Speaker 1: So what we believe is the biggest risk out there
Speaker 1: is what may unfold in the sixt income markets. UM.
Speaker 1: We're big fans of using forecasted risk implied by option
Speaker 1: prices to give us a picture into what may unfold. UM.
Speaker 1: We use the option market estimates of both future upside
Speaker 1: volatility and downside volatility as our crystal ball. UM said
Speaker 1: crystal ball based on the collective wisdom of the markets,
Speaker 1: and what this crystal ball is telling us, UM, and
Speaker 1: it's the most single, most interesting observation that we see
Speaker 1: today that there's great inflationary pressures, that there's great pressures
Speaker 1: to increases and interest rates going forward. UM. Given that
Speaker 1: we are telling clients and potential clients asset owners, you
Speaker 1: really need to rethink the role that bonds play in
Speaker 1: your portfolios. Bonds may no longer a hedge equity risks,
Speaker 1: so you lose that diversification and be bonds given the
Speaker 1: environment of low yields, given the environment that the central
Speaker 1: banks have sucked out risk premium from bonds. Given the
Speaker 1: richness you see in bonds, to carry on bonds maybe
Speaker 1: non existent. UM. So one obvious way and direct way
Speaker 1: to hedge that risk is to lighten up your bond exposure. UM.
Speaker 1: There's ways you can lighten up your bond exposure but
Speaker 1: at the same time keep the risk of your portfolio
Speaker 1: more at moderate levels. Our research shows one great substitute
Speaker 1: for holding bonds UM and say a fifty fifty portfolio
Speaker 1: is simply to hold the portfolio, which is equities. So
Speaker 1: you're earning and you're exposed to an asset which is
Speaker 1: delivering positive risk premium, which is compensating you for the
Speaker 1: risk that you're bearing. But by equity put options to
Speaker 1: reduce that downside risk to a level more consistent with
Speaker 1: say a fifty fifty portfolio, and in many ways you
Speaker 1: then get get the best of both worlds. You're holding
Speaker 1: assets where the risk premium exists, i e. Equities, and
Speaker 1: you're buying protection to limit those losses so that downside
Speaker 1: risk is more in line would say a sixty UM
Speaker 1: A great alternative. Today where rates are low, bond risk
Speaker 1: premium has disappeared, and in many ways the enemy of
Speaker 1: inflations at the gates. So the enemy of bonds dividend growth,
Speaker 1: I mean, is what we're talking about here is you know,
Speaker 1: take your terminal, you out twelve months or sixty months
Speaker 1: for that matter, and just lock in dividend growth and
Speaker 1: say thank you. Yeah. Um, dividends are a great alternative
Speaker 1: um to holding bonds, to getting that yield um anything
Speaker 1: which is offering nice positive carry um in in a
Speaker 1: period where you get inflation, you want to have that
Speaker 1: money sooner rather than later. Hence you're seeing this great
Speaker 1: rotation which really started uh September. There's great rotation away
Speaker 1: from higher duration equities towards lower duration equities. Um. You're
Speaker 1: seeing these mega cap tech names struggle. Why the rotation
Speaker 1: into cyclicals and value names high dividend yielding names. Small
Speaker 1: cap names are doing much much better. Um. So there's
Speaker 1: just simple rules of economics you can follow to help
Speaker 1: hedge inflation risk in a really simple way. You don't
Speaker 1: have to go out and buy break even inflation swaps,
Speaker 1: which are very difficult for anyone to buy, and you
Speaker 1: can do simple things just like you articulated, Tom. Okay,
Speaker 1: we're gonna have to leave it there, Ash, Thank you,
Speaker 1: so much. Ash. I think her there. If you look
Speaker 1: at the equity market price action, I've been pretty confused
Speaker 1: by it. If you break down a sector price action yesterday,
Speaker 1: Tom top of the pile, energy, financials, bottom of the pile.
Speaker 1: You had second a mix, you had utilities in the mix.
Speaker 1: If I showed you that equity snapshot, you would think
Speaker 1: that real yields were inflecting higher. And that's not what's happening. Yeah,
Speaker 1: I totally agree. You and I have gone back and
Speaker 1: forth on this, and I think there's a lot of
Speaker 1: good work out there on it. I would say there's
Speaker 1: basically a hysteria of gloom out there. John. When I
Speaker 1: look at standard of course five under coming from the
Speaker 1: trend of two thousand seven, we exactly kissed up two
Speaker 1: standard deviations and we've pulled back a little bit to
Speaker 1: our extended one and a half standard deviations. That's not
Speaker 1: a correction. It's not a bear market. It's stasis at
Speaker 1: new high levels. I want to bring in challenge Canser
Speaker 1: now of new Berger Berman on this topic. Else, Can
Speaker 1: we just start there your thoughts and what's happening at
Speaker 1: the botom market and what you can reconcile it with
Speaker 1: what's happening at the equity market more recently. Look, I
Speaker 1: think I think the equity market is is the volatility
Speaker 1: driving the equity market is been driven by by ready speedbactors.
Speaker 1: I think one is just overall speculation with retailing of
Speaker 1: the market. I think it's more and more folks to
Speaker 1: go back to work the retail thing or decline. And
Speaker 1: then you have you have inflation fronts and center, where
Speaker 1: where as you discussed, you have this debate around is
Speaker 1: inflation contentory or is it more likely permanent? And and
Speaker 1: for now, you know, a ten uere yields starting with
Speaker 1: a one handle. I think the bone markut remains reasonably
Speaker 1: calm that the inflation debate is more contentory. I will
Speaker 1: question that over time. I think I think the bottom
Speaker 1: market is going to move well before the Fed moves.
Speaker 1: And then you have, you know, the volatility driven by
Speaker 1: the factors and and it's small versus large value versus
Speaker 1: growth and on a day to day basis, it's it's
Speaker 1: those are the factors robing the volatility. I think over time,
Speaker 1: as we've discussed before, it's just been an awesome earning
Speaker 1: season where we're company over nine of the companies have
Speaker 1: come to the beaten expectations, and as earnings goes, so
Speaker 1: goes the market. And that continues to be through this year. Charles,
Speaker 1: Good morning time Keenan, New York. You know, Charles, I
Speaker 1: I look at where we are off a two thousand
Speaker 1: nine log chart on standard ports, and we exactly went
Speaker 1: up and kissed two standard deviations. Extended. Okay, the markets
Speaker 1: a little bit extended now. But when you know and
Speaker 1: Newberger Berman monitor corporate revenues corporate earnings, can you suggest
Speaker 1: we're extended out one year, two years, three years, or
Speaker 1: are we building an underpinning of cash flow that will
Speaker 1: sustain this market? What will sustain the market is earnings
Speaker 1: driven by by economic growth. And we should all recognize
Speaker 1: that that the economy right now is experiencing a demand
Speaker 1: shark the likes of which we haven't seen since World
Speaker 1: War Two, and it's been driven by we have three
Speaker 1: factors in the economy all pedal to the medal at
Speaker 1: the same time. The consumer, the corporation, and both fiscal
Speaker 1: and monetary policy are all in it together at the
Speaker 1: same time. And it's slowly going to be coordinated globally
Speaker 1: and and and as those factors continue to play through,
Speaker 1: you're going to get more and more earning. So we
Speaker 1: started this yet a hundred and eighty five, we're close
Speaker 1: to two hundred down SMP earnings. Next year, after adjusting
Speaker 1: for higher taxes, you probably get another ten percent growth.
Speaker 1: So I think, I think follow the earnings. I think
Speaker 1: we underwrite businesses hard to underwrite price volatility day to day.
Speaker 1: But I think the demand shark is going to play
Speaker 1: out for far longer than people expect, as as as
Speaker 1: as corporations, consumers, and governments continue to behave in the
Speaker 1: way they behaved over the recent past. Charles, just real
Speaker 1: quick here. Leon Cooperman yesterday described himself as a fully
Speaker 1: invested bear. Are you on the same page. You've got
Speaker 1: to believe in innovation, prosperity and growth over time, and
Speaker 1: and and so guessing market direction is is not my
Speaker 1: true north. I'm trying to be an authentic long term
Speaker 1: investor focused on businesses that compound. And what I do
Speaker 1: know is that when business if you can find a
Speaker 1: business that can grow fifteen percent here for three years,
Speaker 1: you have fifty more earning three years from today. That
Speaker 1: builds in an awful lot of protection on any price volatility.
Speaker 1: So I tend to be a reasonable optimist. I feel
Speaker 1: emboldened by what transpired last year by innovation and governments
Speaker 1: and companies coming together to solve to solve something just
Speaker 1: awful and and and being optimistic has has always paid
Speaker 1: off long term. And there's nothing about risk assets today
Speaker 1: that suggests to me in total that that that that
Speaker 1: of that you know. Of course the parts of the
Speaker 1: market with speculation is rampant um and with stories are
Speaker 1: so great that can't be validated nor refuted. But but
Speaker 1: focused on businesses with that aire solving real problems that
Speaker 1: have long term modes. And and I think investors are
Speaker 1: going to be just great. It's gonna see you and
Speaker 1: it's going to catch you up. Chiles Cancer that new
Speaker 1: Berger Berman Long short fund senior portfolio manager right now
Speaker 1: on this pharmacy upward, we get lucky. Jennifer Noozle joins us.
Speaker 1: She's been with us before with JOHNS. Tompkins Center for
Speaker 1: Health Security. And Jennifer, I want to go to that
Speaker 1: moment in organic chemistry where you realized that Rutgers an
Speaker 1: environmental organic chemistry. Oh, this my recurring nightmare question. It's hard.
Speaker 1: I mean method lethal keytone in organic was easy. And
Speaker 1: then I opened Morrison emboyed up and I said, these
Speaker 1: people are freaking geniuses. Let's go back. Yeah, you know
Speaker 1: it all back, Let's go to the gross underestimation here
Speaker 1: of the geniuses actually manufacturing m r n A. They
Speaker 1: passed Morrison, and boy didn't they They did, they did,
Speaker 1: and thank goodness for it, because these vaccines are lifesavers literally,
Speaker 1: well their lifesavers literally. But I think there's an underestimation
Speaker 1: here of those intellectual rights of those drug companies. How
Speaker 1: do we move from intellectual rights to the crying need
Speaker 1: to vaccinate India? Yeah, that's exactly the question. I mean,
Speaker 1: we completely understandable. Um, you know, I think in the
Speaker 1: case of Maderna that the good news is that you know,
Speaker 1: the US government, um, you know developed the vaccine. The
Speaker 1: I p on that, but it is it is an
Speaker 1: urgent situation for us to address because we do have
Speaker 1: a crying need and it's not just an India. I mean,
Speaker 1: the situation in India is just staggering. Yesterday they broke
Speaker 1: get another record of you know, more than a four
Speaker 1: into thousand cases. We know that's probably a gross under
Speaker 1: estimate of the number of infections that are occurring um
Speaker 1: nearly four thousand deaths you know, in a single day, um.
Speaker 1: But we're also seeing staggeringly high case accounts in case acceleration,
Speaker 1: and a number of other countries um that are you know,
Speaker 1: ill equipped to handle it themselves as well. So we
Speaker 1: have to figure this out. There is an urgent need
Speaker 1: for vaccines across the globe, and we just simply don't
Speaker 1: have enough. We need to make more. So we need
Speaker 1: to figure out whatever path is possible to making more
Speaker 1: vaccines as soon as possible. That's the only way we're
Speaker 1: all going to feel normal about this situation. Even as
Speaker 1: we roll out vaccines here in the US, We've got
Speaker 1: to make more. That's the conclusion, without a doubt. That's
Speaker 1: his stonic position. So doctor, let's try and ask the
Speaker 1: right questions. At least that's my job. What do you
Speaker 1: think is holding that vaccine supply? And do you think
Speaker 1: IP protection is the biggest obstacle to that? You know,
Speaker 1: I don't think there's any one big obstacle. I think
Speaker 1: there's a series of small lots of small obstacles. Um.
Speaker 1: You know, it appears that IP protection maybe one of
Speaker 1: the issues I think we really need to have a
Speaker 1: detailed analysis of what the issues are. We also know
Speaker 1: that shortages of raw materials are an issue. We we
Speaker 1: urgently need a situation where we can track this at
Speaker 1: the global level to understand where the raw materials are
Speaker 1: to get countries to stop hoarding whatever they have. I
Speaker 1: think actually more transparency in the global supply chain would
Speaker 1: help some of those hoarding tendencies. Um, but we need
Speaker 1: to do this in a concerted way. I mean this
Speaker 1: whole like each country go it's on its own in
Speaker 1: order to vaccinate its own population. It's really not sufficient
Speaker 1: in the global pandemic because what we have now is
Speaker 1: a few countries that have more than enough vaccines for
Speaker 1: its highest risk population and most countries having not even
Speaker 1: close to enough to vaccinate even the you know, even
Speaker 1: its health care workers who are putting their lives on
Speaker 1: the line every day. So we need to figure out
Speaker 1: something and just the current amount of vaccine we have
Speaker 1: is not sufficient to address the most pressing needs dr news.
Speaker 1: So let's try to strip out the political noise here.
Speaker 1: How much is the I P issue a distraction based
Speaker 1: on the length of time it will take to get
Speaker 1: through and actually affect the pandemic as we know it
Speaker 1: right now, versus looking at the stockpiles that places like
Speaker 1: the United States has and deciding how much the US
Speaker 1: ought to be shipping out. Will also making sure that
Speaker 1: its population is covered. Yeah, so we need to do
Speaker 1: all of it is really the thing. I mean, we
Speaker 1: need to make more. But making more, even you know
Speaker 1: I P issues or not UM is going to take time.
Speaker 1: So we have to think about how we're going to
Speaker 1: use the vaccines that we have. And you know, I
Speaker 1: think it is great that we've made so much progress
Speaker 1: in vaccinating adults here in the US. UM. This is
Speaker 1: bringing down our case numbers and I expect we will
Speaker 1: continue to continue to see case declines over the coming months.
Speaker 1: Israel in the UK, they're their case members are way down,
Speaker 1: and I expect that we will We will get there. UM.
Speaker 1: But the question is what do we do with the
Speaker 1: other vaccines? Do you know, do we keep it for ourselves?
Speaker 1: Do we start using it in our kids? These are
Speaker 1: tough questions when we have such urgent needs m across
Speaker 1: the world. Maybe now is not the time for us
Speaker 1: to be vaccinating low RESK populations. Maybe we can share
Speaker 1: some and then and come back and do that. We
Speaker 1: need to figure this out. I don't have all the answers,
Speaker 1: but I do think that our failure to answer these
Speaker 1: questions is what's not ending this pandemic. Jennifer got one
Speaker 1: final question. I just figured out that Morrison Avoid sixth
Speaker 1: edition costs two y eight dollars, which is enough to
Speaker 1: start drinking early. Look, look, Jennifer, what's so important here? Seriously?
Speaker 1: How do we move an m R and a vaccine
Speaker 1: with cold storage over to Mumbai or rural India? To me,
Speaker 1: that's a fiction. Um, it's actually not. And the reason
Speaker 1: why I can say that is that we have used
Speaker 1: vaccines that require ultracold chain conditions UM in low resource
Speaker 1: settings like UM, the Democratic Republic of Congo use a
Speaker 1: UM A vaccine that requires cold storage. UM. You know,
Speaker 1: to to address the c balla problem. So UM, it
Speaker 1: is not It is not not a challenge, but it
Speaker 1: is one that has been worked on before. John, this
Speaker 1: is a problem. Every time Dr news os On, I
Speaker 1: learned something every single sign. I'll try harder next time
Speaker 1: not to do that. Before you run we go to town.
Speaker 1: Got an important domestic issue as well. Two point one
Speaker 1: three million vaccines per day. That's the average over the
Speaker 1: last seven days. When are they going to shove a
Speaker 1: little bit of confidence about what vaccinated people can do?
Speaker 1: Let's do it now. I mean, I'm, you know, I
Speaker 1: was saying just before I came on, I'm fully immunized
Speaker 1: as a Friday, and I'm, you know, planned to take
Speaker 1: advantage of that and you know, go out and do
Speaker 1: more things that I have done for the last year.
Speaker 1: I think we have to talk fairly about vaccines, that
Speaker 1: there are pathway back to freedom for sure, and reclaiming
Speaker 1: those freedoms seems to be the big objective. Doctor. It's
Speaker 1: gonna catch up, Jennifer News There, John's helped CONSENSI a
Speaker 1: house security Senia Scala. This is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening. Join us live weekdays from seven to
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