WEBVTT - Surveillance: Treasury Rally Temporary, Cabana Says 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Lee. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.600 dot com, and of course, on the Bloomberg terminal. Mark 0:00:29.640 --> 0:00:31.880 upon it joined US now Banks America Security's head of 0:00:31.960 --> 0:00:37.760 US Right Strategy mark substantial further progress that awards were 0:00:37.800 --> 0:00:40.320 all interested in. The FED won't define them. Are we 0:00:40.400 --> 0:00:43.080 done yet? I don't think we're there yet, but I 0:00:43.120 --> 0:00:44.680 agree with you. I think they're gonna be the three 0:00:44.760 --> 0:00:48.040 most important words for financial markets over the next quarter 0:00:48.240 --> 0:00:51.440 or two. It's substantial further progress and that holds the 0:00:51.520 --> 0:00:53.880 key to determining when the FED will begin to slow 0:00:53.960 --> 0:00:57.120 their asset purchases, which will eventually pave the way for 0:00:57.160 --> 0:01:00.280 them to potentially raise interest rates. That the FED hasn't 0:01:00.280 --> 0:01:03.320 told us what substantial for the progress means. We believe 0:01:03.480 --> 0:01:06.520 that it likely means a labor market that is back 0:01:06.600 --> 0:01:09.720 to pre COVID levels. The FED has been reiterating that 0:01:09.720 --> 0:01:12.600 we're in an eight million job hole um. That's the 0:01:12.720 --> 0:01:14.920 level of employment where we are today versus where we 0:01:14.920 --> 0:01:18.720 were pre pandemic. But we anticipate a lot of progress 0:01:18.760 --> 0:01:21.600 in closing that whole and in filling that hole over 0:01:21.600 --> 0:01:25.800 the next few months. We anticipate essentially million job growth 0:01:25.880 --> 0:01:28.880 months over the next several months, and we believe that 0:01:28.880 --> 0:01:31.000 that will allow for the FED to assess that we 0:01:31.040 --> 0:01:34.520 are making substantial for the progress. Likely by the end 0:01:34.560 --> 0:01:36.600 of the year that will have been achieved, and we 0:01:36.640 --> 0:01:39.640 anticipate that the FED will begin to signal that they're 0:01:39.680 --> 0:01:42.920 moving in that direction um to agree that there has 0:01:42.959 --> 0:01:45.560 been substantial for the progress by the summer or the 0:01:45.600 --> 0:01:49.520 early fall. We're sort of thinking, you know, August Jackson 0:01:49.600 --> 0:01:52.480 Hole or potentially September f o MC for when we 0:01:52.520 --> 0:01:55.720 could see a shift in the timing for when asset 0:01:55.760 --> 0:01:58.640 purchases will begin to be withdrawn. That will be clear. 0:01:58.680 --> 0:02:01.160 I don't think that this withdrawal will start until Q 0:02:01.400 --> 0:02:03.760 one of next year, but the FED will start sending 0:02:03.800 --> 0:02:06.640 the signal over the summer. You took away my next question, 0:02:06.640 --> 0:02:08.000 because that's what I was going to ask, what the 0:02:08.040 --> 0:02:10.120 actual type would look like and when it would be executed, 0:02:10.160 --> 0:02:12.280 So mark up build on that. Just the sequencing some 0:02:12.280 --> 0:02:14.799 words you use this will pave the way for rat 0:02:14.919 --> 0:02:17.920 increases the sequence. That is it that obvious that that 0:02:17.960 --> 0:02:22.639 will be the next step in the imminent future. Well, 0:02:22.639 --> 0:02:24.960 that's what the FED has told us recently. So this 0:02:25.000 --> 0:02:28.040 week they started focusing a little bit more on what 0:02:28.160 --> 0:02:32.800 the path for accommodation withdrawal will look like. They stressed 0:02:32.800 --> 0:02:35.680 the tapering of asset purchases will happen before they begin 0:02:35.760 --> 0:02:38.480 to raise interest rates. Now, we think that they ideally 0:02:38.520 --> 0:02:41.720 want to complete that taper. They want to stop buying 0:02:42.320 --> 0:02:44.840 before they raise rates UM, and that's still gonna be 0:02:44.919 --> 0:02:47.639 some time away. We think that the taper process will 0:02:47.680 --> 0:02:50.280 likely be a year or so uh, and that they 0:02:50.320 --> 0:02:53.680 won't start raising rates until at some point in three 0:02:53.800 --> 0:02:57.280 we think the latter half of UM. So it's gonna 0:02:57.320 --> 0:03:00.240 be a long path to get there. But what the 0:03:00.280 --> 0:03:02.560 market's going to care about is when the Fed starts 0:03:02.600 --> 0:03:05.320 to signal that it is moving in that direction, because 0:03:05.360 --> 0:03:07.600 the market is very quickly going to extrapolate from a 0:03:07.600 --> 0:03:10.480 FED that is cutting its asset purchases or at least 0:03:10.520 --> 0:03:13.960 setting the stage for that UM and then extrapolating rate 0:03:14.040 --> 0:03:16.760 hikes at some point in the future off of that mark. 0:03:16.840 --> 0:03:19.360 What I'm hearing from you is higher rates ahead. What 0:03:19.480 --> 0:03:23.000 I hear from everyone, almost everyone, higher rates ahead. Looking 0:03:23.040 --> 0:03:26.239 here at ten year yields, they are lower. They're aggressively 0:03:26.280 --> 0:03:29.160 lower on the week compared to the past a few weeks. 0:03:29.480 --> 0:03:33.800 What gives? Yeah, So, look, you're you're exactly right. Really 0:03:33.880 --> 0:03:36.320 since the start of the second quarter, since the start 0:03:36.320 --> 0:03:38.800 of April, we're down about twenty basis points on the 0:03:38.840 --> 0:03:42.000 ten year um, and frankly, it has been a bit 0:03:42.000 --> 0:03:46.280 of a surprise, especially given the very robust economic data 0:03:46.320 --> 0:03:49.200 that we have seen. You're at good retail sales report, 0:03:49.440 --> 0:03:54.320 solid cp I and incredibly strong employment report earlier this month. 0:03:54.600 --> 0:03:58.240 So why we think that it's essentially three factors that 0:03:58.280 --> 0:04:00.760 are driving it. One, we're starting to see some pockets 0:04:00.760 --> 0:04:04.240 of demand from foreign investors and asset managers, especially with 0:04:04.240 --> 0:04:07.560 equities at all time highs. Too, we think that there's 0:04:07.600 --> 0:04:11.320 been likely a technical squeeze here some short positions that 0:04:11.440 --> 0:04:14.520 got squeezed in the move and are now covering. And Three, 0:04:14.720 --> 0:04:16.920 we also think that there's just an incredible amount of 0:04:16.960 --> 0:04:20.440 cash outstanding. The amount of reserves in the banking system 0:04:20.520 --> 0:04:23.599 has grown a hundred billion dollars since April, it's grown 0:04:23.640 --> 0:04:29.440 almost a quarter or twenty just this year, so we've 0:04:29.480 --> 0:04:31.719 seen a lot more cash in the banking system and 0:04:31.839 --> 0:04:35.000 that's looking for a home. This also coincides with stimulus 0:04:35.080 --> 0:04:38.520 checks that have been paid out and investors and recipients 0:04:38.520 --> 0:04:40.880 of those stimulus checks that suggest, at least to the 0:04:40.880 --> 0:04:44.320 New York Fed, of that money is going to be 0:04:44.360 --> 0:04:48.680 invested and saved and that's finding its way into financial assets. 0:04:48.720 --> 0:04:51.720 So to some extent, this is a rally where everything 0:04:51.800 --> 0:04:55.200 is rich ining right, Rates are declining, equities are reaching 0:04:55.240 --> 0:04:57.520 all time hime. We know what's happening with crypto and 0:04:57.640 --> 0:05:00.960 other alternative assets. All of the those are appreciating, and 0:05:00.960 --> 0:05:03.919 so we do think that the rates market is a 0:05:03.960 --> 0:05:08.520 beneficiary of some of that that's pushing rates lower. Now, importantly, 0:05:08.839 --> 0:05:10.599 what we see in the rates move is that it's 0:05:10.720 --> 0:05:13.480 really all real rate lead, where the majority of it 0:05:13.560 --> 0:05:17.040 is real rate lead. That's an easing of financial conditions. Um. 0:05:17.080 --> 0:05:19.960 We also anticipate that this will likely be temporary and 0:05:20.040 --> 0:05:23.960 short lived. Fundamentals will trump here and fundamentals are going 0:05:24.000 --> 0:05:26.800 to be incredibly strong over the remainder of this year. 0:05:27.200 --> 0:05:30.480 So we've been encouraging clients take this opportunity this little 0:05:30.520 --> 0:05:33.600 rate rally and reset your shorts because this will not 0:05:33.720 --> 0:05:36.800 likely persist. The economy is gonna be really strong, Inflation 0:05:36.880 --> 0:05:38.600 is gonna start to pick up, and the Fed will 0:05:38.600 --> 0:05:40.680 begin to change their tune. And as all of those 0:05:40.680 --> 0:05:43.760 things happen, rates are gonna move higher. Mark with some 0:05:43.800 --> 0:05:45.800 conviction of the end that looking forward to the conversation 0:05:45.839 --> 0:05:47.320 through the rest of this year, market pound of that 0:05:47.560 --> 0:05:55.240 of bankf America Securities, the head of US rights strategy, 0:05:56.600 --> 0:05:58.200 and let's talk about the addlies we can do that 0:05:58.240 --> 0:06:00.920 with that, I'm back a cab at Sadia Reese Search analyst. Colle, 0:06:01.520 --> 0:06:04.440 there's three worlds right now in your world. We've got 0:06:04.720 --> 0:06:08.280 the business world, We've got international travel, and then we've 0:06:08.320 --> 0:06:10.640 got leisure. And they all look different, don't they Can 0:06:10.640 --> 0:06:13.320 you just walk through them one by one? Yes, good 0:06:13.320 --> 0:06:17.039 morning and thanks for having me team. Um So, business 0:06:17.080 --> 0:06:19.560 travel is kind of a tale of two businesses one 0:06:19.720 --> 0:06:22.359 or maybe three. A one is small and medium sized 0:06:22.400 --> 0:06:26.000 companies that have never really left. Those folks. They're the 0:06:26.000 --> 0:06:29.240 folks who need revenue, so they are traveling. Then there's 0:06:29.320 --> 0:06:32.520 corporate business and that hasn't come back yet maybe a 0:06:32.520 --> 0:06:35.800 little bit, but in general, if you're a big corporation, 0:06:36.080 --> 0:06:38.159 sales tend to come to you, you don't have to 0:06:38.200 --> 0:06:41.479 go out and get them. And then there's conferences, which 0:06:41.560 --> 0:06:43.599 I noticed are starting to come back. I'm going to 0:06:43.680 --> 0:06:47.480 one this weekend in aviation conference that starts um I 0:06:47.520 --> 0:06:51.760 think Monday, and then um World of Concrete is apparently 0:06:51.839 --> 0:06:55.040 the first conference in June that's returning to Las Vegas, 0:06:55.360 --> 0:06:58.720 so that's coming back. So that's the business side. Then 0:06:58.800 --> 0:07:02.159 you have the international. There's again two different worlds. One 0:07:02.200 --> 0:07:05.920 is our hemisphere where I think as Americans are getting vaccinated, 0:07:05.920 --> 0:07:08.560 they feel more comfortable traveling, so they're going to the Caribbean. 0:07:09.000 --> 0:07:12.200 They're going they're going to beach destinations and mountains and 0:07:12.240 --> 0:07:17.800 outdoor things, Latin American beach destinations, Mexico um I mentioned 0:07:17.800 --> 0:07:20.840 the Caribbean, and a lot of the big resort hotels 0:07:20.880 --> 0:07:23.720 are making it very easy for Americans to test before 0:07:23.720 --> 0:07:26.360 they go back to the United States because we still 0:07:26.400 --> 0:07:28.960 have to test even if you're vaccinated before you come back, 0:07:29.560 --> 0:07:31.920 and the airports are doing the same, so that makes 0:07:31.920 --> 0:07:35.480 it relatively easy. And then there's Europe, which is I 0:07:35.480 --> 0:07:38.360 think four to six months behind us, and then Asia 0:07:38.440 --> 0:07:40.440 which is probably a year behind us. I don't see 0:07:40.440 --> 0:07:46.680 Asia coming back really until um two at the earliest, 0:07:46.840 --> 0:07:51.360 and even Europe fourth quarter or maybe. And then there's leisure, 0:07:51.520 --> 0:07:55.559 domestic leisure, and I think domestic leisure is at least 0:07:55.680 --> 0:07:59.239 nine of the way back. And I think those million 0:07:59.280 --> 0:08:02.200 and a half people we see traveling every day roughly 0:08:02.360 --> 0:08:05.560 somewhere between a million two a million five UM. I 0:08:05.600 --> 0:08:09.000 think about a million UM, I would think all about 0:08:09.000 --> 0:08:11.680 a hundred and fifty or two hundred thousand of them 0:08:11.760 --> 0:08:16.600 our leisure. And I know right it's it's pretty amazing 0:08:16.680 --> 0:08:20.480 that people feel really comfortable traveling, and as they get vaccinated, 0:08:20.520 --> 0:08:22.760 they're doing things you I was listening to you guys 0:08:22.840 --> 0:08:26.640 talk about, you know, going back to restaurants and stuff. Um. Yeah. 0:08:26.680 --> 0:08:29.040 I mean if I got vaccinated and I'm out of 0:08:29.040 --> 0:08:32.400 my two week window from because I got you know, 0:08:32.440 --> 0:08:36.000 the one vaccine with two shots, then why am I 0:08:36.040 --> 0:08:38.640 still in Paradise prison. Why can't I go out and 0:08:38.720 --> 0:08:41.720 start my next I said, my next normal as supposed 0:08:41.760 --> 0:08:44.920 to reclaiming my life. But why can I start doing 0:08:44.960 --> 0:08:47.400 the things that I used to do before I got 0:08:47.400 --> 0:08:50.319 locked down? Yeah, Helene, I gotta say it is almost 0:08:50.400 --> 0:08:52.400 trying to make us feel bad for being at work 0:08:52.440 --> 0:08:55.600 and not on those Caribbean beaches and the fantastic destinations 0:08:55.600 --> 0:08:57.839 that you're talking about. A lot of people want to 0:08:57.880 --> 0:09:00.520 go places. There's a question about the airline and whether 0:09:00.559 --> 0:09:03.440 they can meet demand given how many people they have 0:09:03.520 --> 0:09:06.120 to bring back into the offices and bring back to 0:09:06.160 --> 0:09:08.560 their airplanes. I know that Delta had an issue with 0:09:08.640 --> 0:09:12.040 not having enough pilots, not having enough flight attendants, and 0:09:12.040 --> 0:09:16.120 they had to cancel flights. Are you hearing difficulties around 0:09:16.120 --> 0:09:18.560 this and with respect to that, are they raising some 0:09:18.640 --> 0:09:22.600 of the wages in response? Um. So there's a lot 0:09:22.640 --> 0:09:26.320 of questions in there. And one of the issues Delta had, 0:09:26.480 --> 0:09:30.080 and I don't know that this is an excuse, but 0:09:30.160 --> 0:09:33.559 it's what they said, is that, UM, a lot of 0:09:33.600 --> 0:09:37.040 their pilots were able to get vaccinated, and the FAA 0:09:37.160 --> 0:09:40.079 doesn't let you fly within forty eight hours of getting vaccinated, 0:09:40.120 --> 0:09:42.800 so they had to cancel flights. You would just think 0:09:42.880 --> 0:09:44.800 they would have timed that a little bit better so 0:09:44.880 --> 0:09:48.360 it didn't happen over Easter weekend. UM. As far as 0:09:48.440 --> 0:09:50.559 wage rates, I want to tackle that because I think 0:09:50.600 --> 0:09:54.040 it's really important. The Big Three airlines American, Delta, and 0:09:54.160 --> 0:09:58.320 United all have open pilot contracts, and um, we think 0:09:58.360 --> 0:10:00.880 wages at the starting level or definitely going to go up. 0:10:00.960 --> 0:10:03.200 I'm not a hundred percenter in that wages at the 0:10:03.240 --> 0:10:05.319 top end will go up more than a few dollars 0:10:05.320 --> 0:10:08.840 an hour. But when the pandemic hit really hard a 0:10:08.880 --> 0:10:11.000 year ago, and it was exactly a year ago that 0:10:11.240 --> 0:10:14.600 traffic bottom depth at eighty seven eighty five thousand a 0:10:14.679 --> 0:10:16.400 day level, and I said, we're now back to a 0:10:16.440 --> 0:10:20.600 million five. Um, the airlines worked with their employees to 0:10:20.720 --> 0:10:24.080 try to get anybody who was thinking about retiring between say, 0:10:26.120 --> 0:10:29.480 to think about retiring. Last year, some of the airlines 0:10:29.520 --> 0:10:31.960 worked with their people to cut hours so they didn't 0:10:31.960 --> 0:10:34.400 have to furlough as many people. I mean, one thing 0:10:34.480 --> 0:10:38.079 to consider for pilots, it's always last in, first out, 0:10:38.600 --> 0:10:41.760 which means they would have had to furlough a lot 0:10:41.840 --> 0:10:44.480 of pilots at the lower end of the pay skill 0:10:44.760 --> 0:10:49.280 and at the lesser seniority level, versus keeping those pilots 0:10:49.280 --> 0:10:52.760 and asking older pilots who were kind of sixty two 0:10:52.840 --> 0:10:56.679 to sixty five, well, mandatory retirement ages sixty five anyway, 0:10:56.679 --> 0:10:59.960 But pilots in their sixties to think about retiring earlier, 0:11:00.040 --> 0:11:02.440 working few hours to keep more people on the peril 0:11:03.080 --> 0:11:06.240 so that when we recover, we're ready to rock and 0:11:06.360 --> 0:11:09.480 roll as opposed to having issues. As you know, I'm 0:11:09.520 --> 0:11:12.320 hearing there are issues in some other service sectors. Well, 0:11:12.360 --> 0:11:15.120 they're rocking and rolling for some of these airlines right now. 0:11:15.120 --> 0:11:18.240 Helloeen fantastically catch out with you. You're not just an analyst. 0:11:18.280 --> 0:11:20.360 I know how much you care about this industry as well, 0:11:20.480 --> 0:11:21.880 and it's good to see it back on its feet. 0:11:21.880 --> 0:11:24.600 He line back of the cam and senior research analysts. 0:11:29.480 --> 0:11:32.960 Let's bring in Stephen Stanley. I must pay upon chief economists. Stephen, 0:11:33.040 --> 0:11:35.040 what a week. We can take a deep breath and 0:11:35.080 --> 0:11:37.160 move on to the weekend. Soon. You'll take on the 0:11:37.240 --> 0:11:41.680 data so far this week, Stephen. Sure, well, pretty much 0:11:41.720 --> 0:11:45.920 every high profile March economic indicator has been far stronger 0:11:45.960 --> 0:11:47.760 than expected, going all the way back to the I 0:11:48.040 --> 0:11:50.760 M and employment numbers in the prior week. But certainly 0:11:50.760 --> 0:11:53.680 the retail sales numbers yesterday and now the housing starts 0:11:53.760 --> 0:11:55.640 numbers today. I think in some ways it was a 0:11:55.640 --> 0:11:58.480 perfect storm in March, because February you had the bad weather, 0:11:58.520 --> 0:12:01.319 particularly as it released to how starts, which would have 0:12:01.400 --> 0:12:03.320 depressed a lot of the February data. And I think 0:12:03.320 --> 0:12:05.640 March for housing starts at least was a catch up 0:12:06.040 --> 0:12:08.400 based on the weather. But certainly the market, the housing 0:12:08.440 --> 0:12:11.360 market continues to be extremely strong and builders are going 0:12:11.400 --> 0:12:13.600 to be uh playing catch up for a long time. 0:12:13.720 --> 0:12:16.360 So you know, the more starts they can get under 0:12:16.360 --> 0:12:19.080 their belts, the better it is for the market. Stephen One, 0:12:19.120 --> 0:12:21.440 try if this recovery has just been how quickly things 0:12:21.440 --> 0:12:23.560 have move in As an economist, how difficult do you 0:12:23.600 --> 0:12:27.080 find to get just to keep up? Yeah, you have 0:12:27.160 --> 0:12:29.760 to be nimble. I mean usually when you're doing your 0:12:29.800 --> 0:12:32.480 GDP tracking estimates, they might move by one or two 0:12:32.520 --> 0:12:34.640 or three tenths when a particular number comes out. But 0:12:34.679 --> 0:12:36.640 you get a number like retail sales yesterday, and all 0:12:36.640 --> 0:12:39.720 of a sudden you're revising by one to three percentage 0:12:39.720 --> 0:12:41.760 points depending on what your forecast was going in. And 0:12:41.800 --> 0:12:44.600 I think, um, you know, that's something that that I 0:12:44.640 --> 0:12:46.840 think relates to the FED as well, because the Fed 0:12:46.920 --> 0:12:48.760 has this thought in their head that they're going to 0:12:48.800 --> 0:12:51.079 be able to move very slowly and just kind of 0:12:51.559 --> 0:12:53.840 you know, inch their way back toward normal and policy. 0:12:53.920 --> 0:12:56.320 But If the economy continues to gain ground at the 0:12:56.360 --> 0:12:58.480 speed that we're seeing right now, then things may play 0:12:58.520 --> 0:13:01.360 out quite a bit differently. Among the economic mysteries of 0:13:01.400 --> 0:13:03.760 the week has been bank earnings and the lack of 0:13:03.840 --> 0:13:07.079 loan demand. A lot of banks and executives they're saying 0:13:07.120 --> 0:13:09.120 this is actually a good thing. It's because there's so 0:13:09.200 --> 0:13:11.480 much cash that people are spending that and paying down 0:13:11.480 --> 0:13:13.720 their debt so to be that much more ready to 0:13:13.800 --> 0:13:16.440 spend later on. Do you view it the same way 0:13:16.679 --> 0:13:18.880 or are there are signs of caution within the lack 0:13:18.920 --> 0:13:22.640 of loan demand now? I think it's the function of 0:13:22.640 --> 0:13:25.360 the fact that people are people, and corporations at this 0:13:25.400 --> 0:13:28.280 point are very flush. I mean, the household sector has 0:13:28.320 --> 0:13:32.760 been has gotten three rounds of rebate checks, very generous 0:13:32.800 --> 0:13:35.880 unemployment benefits, and if you look at the personal income 0:13:35.960 --> 0:13:39.079 numbers and the savings rate, there's no reason for people 0:13:39.080 --> 0:13:40.640 to borrow. The only reason that people are going to 0:13:40.720 --> 0:13:42.920 have the borrow really is as you as you mentioned before, 0:13:43.000 --> 0:13:45.880 is is home mortgages. On the corporate side is kind 0:13:45.880 --> 0:13:48.640 of the same thing. We saw this blowout in UH 0:13:48.720 --> 0:13:52.120 corporate bond issues last year and into into this year, 0:13:52.440 --> 0:13:54.760 and I think most companies are are pretty flushed with 0:13:54.800 --> 0:13:57.400 cash right now and sitting on that cash and waiting 0:13:57.400 --> 0:14:00.640 to deploy it. So there's really not much need for 0:14:00.720 --> 0:14:03.760 a lot of borrowing at this point, except for you know, 0:14:03.800 --> 0:14:06.679 specific sectors like home mortgages and maybe you know, student 0:14:06.760 --> 0:14:09.319 loans and a few other things. So how do you determine, Stephen, 0:14:09.559 --> 0:14:12.280 if we've got enough momentum to keep this pace of 0:14:12.320 --> 0:14:15.120 spending up, perhaps on a credit line rather than just 0:14:15.240 --> 0:14:18.480 using cash beyond the next two quarters or whatever it 0:14:18.559 --> 0:14:22.800 is to to wear down some of this cash. Well, 0:14:23.000 --> 0:14:25.320 there are various numbers that you can look at. Obviously, 0:14:25.360 --> 0:14:28.280 the savings rate comes out every month. The FED puts 0:14:28.280 --> 0:14:32.560 out quarterly data on um, you know, household financial assets 0:14:32.560 --> 0:14:36.080 and and things like that, and those data indicate that 0:14:36.080 --> 0:14:38.960 that consumers are just flush right now, a lot of money. 0:14:38.960 --> 0:14:42.040 And that was even before this latest round of rebate checks. 0:14:42.040 --> 0:14:44.280 So I think it's going to take a while for 0:14:44.360 --> 0:14:47.360 consumers to plow through that stockpile. And I think they've 0:14:47.360 --> 0:14:49.400 been saving up to do all the fun stuff that 0:14:49.440 --> 0:14:51.120 we haven't been able to do for the last year. 0:14:51.280 --> 0:14:54.520 Travel and uh, you know, go out to events, uh 0:14:54.560 --> 0:14:56.640 and things like that, and so I think there's certainly 0:14:56.640 --> 0:14:58.920 going to be kind of this one off, you know, 0:14:59.120 --> 0:15:02.360 blowout period where people are you know, everybody's trying to 0:15:02.360 --> 0:15:04.400 take a vacation at the same time, everybody's trying to 0:15:04.440 --> 0:15:07.040 go to the same concerts and ball games and all 0:15:07.080 --> 0:15:10.040 the rest. Uh. And then once the dusk starts to settle, 0:15:10.040 --> 0:15:12.360 we'll see where we are at that point. Seven, We've 0:15:12.360 --> 0:15:14.640 got to talk about the shift in the reaction function 0:15:14.680 --> 0:15:16.800 of the FET, the shift in the framework. It's a 0:15:16.880 --> 0:15:19.600 framework that would have been perfect for the previous cycle, 0:15:19.680 --> 0:15:21.400 would have made a load of sense. Does it make 0:15:21.480 --> 0:15:25.440 sense for this one? Well, you know, I think it 0:15:25.520 --> 0:15:28.040 all depends on how inflation plays out, right, because they 0:15:28.160 --> 0:15:30.000 what they've said basically is they want to wait to 0:15:30.040 --> 0:15:32.120 see the whites of the eyes of inflation. And again, 0:15:32.160 --> 0:15:33.840 I mean, the FET has conceded that we're going to 0:15:33.920 --> 0:15:37.480 get this uh short term pop in prices. But then 0:15:37.480 --> 0:15:40.080 they think things are gonna you know, go right back 0:15:40.080 --> 0:15:44.920 into place add or below two um. If inflation gets 0:15:45.080 --> 0:15:47.600 well above their target and stays there for more than 0:15:47.640 --> 0:15:50.360 a few months, then I think, you know, at that point, 0:15:50.400 --> 0:15:52.960 the react the new reaction function probably looks a lot 0:15:53.000 --> 0:15:56.640 like the old one would have. UM, if inflation remains 0:15:56.720 --> 0:15:58.800 very benign, then I think they're gonna be extremely devish 0:15:58.840 --> 0:16:01.040 and wait a long time. But they may or may 0:16:01.040 --> 0:16:03.640 not have that luxury, depending on how prices behave Stephen, 0:16:03.680 --> 0:16:05.360 can we call it the weekend? Now? Are we done? 0:16:05.400 --> 0:16:08.560 I think we've done? Absolutely? Absolutely, thank you. I'm still here. 0:16:08.600 --> 0:16:12.560 Thank you, Stephen Stanley. So are you? John Economist? Just 0:16:12.560 --> 0:16:16.440 getting people on site? Okay, great, you're gonna throw off 0:16:16.440 --> 0:16:25.080 your mike. We're done. Daniel Tannon bound joys it now. 0:16:25.200 --> 0:16:28.280 Oliver Wyman, partner in a head of America's Anti financial 0:16:28.320 --> 0:16:31.720 crime unit. I'm curious from your perspective, Dan, of whether 0:16:31.840 --> 0:16:36.000 these sanctions were harsh and unexpected or perhaps too light 0:16:36.440 --> 0:16:41.240 given some of the potential allegations here. Thanks Lisa, and 0:16:41.360 --> 0:16:45.080 as as Nick Wattams and others reported last week, these 0:16:45.080 --> 0:16:48.200 sanctions were known to be coming in response to the 0:16:48.240 --> 0:16:51.640 solar winds hack and election meddling, and as described other 0:16:51.720 --> 0:16:55.920 malign activities by Russia. UM, I think what these sanctions 0:16:56.000 --> 0:16:59.480 looked like, We're a bit unclear coming into the announcement 0:16:59.560 --> 0:17:02.480 yesterday in terms of how severe they would be. It's 0:17:02.520 --> 0:17:05.560 pretty clear that this was a proper opening salvo and 0:17:05.880 --> 0:17:09.840 no attempt for a knockout punch. Also, these sanctions were 0:17:10.320 --> 0:17:13.600 quite explicitly responsive to just the hacking issues. You still 0:17:13.640 --> 0:17:16.679 have nord stream to lingering out there. You still have 0:17:16.760 --> 0:17:19.159 issues related to Alexi of only, as well as the 0:17:19.200 --> 0:17:22.560 Russian military build up on the Ukrainian border. So there's 0:17:22.600 --> 0:17:25.280 still a whole other range of issues that the U 0:17:25.400 --> 0:17:27.560 s could begin to push harder against on Russia. And 0:17:27.600 --> 0:17:29.879 I think this was just the warning shot. Well, and 0:17:29.920 --> 0:17:31.960 you certainly saw that in markets. I mean, you're seeing 0:17:31.960 --> 0:17:34.640 a bounce back today in the ruble uh now gaining 0:17:34.800 --> 0:17:37.560 versus the dollar. People seemed unfazed when it came to 0:17:37.600 --> 0:17:40.240 even sovereign debt, even though you did get a bar 0:17:40.480 --> 0:17:44.439 from some of the banks engaging with these securities what 0:17:44.600 --> 0:17:48.879 could potentially disrupt markets. That seems like a realistic escalation 0:17:49.200 --> 0:17:52.639 between the US and with with Russia. Yeah, And I 0:17:52.680 --> 0:17:58.040 think we've seen an evolution of securities trading related activity 0:17:58.080 --> 0:18:00.879 restriction since with the beginning of some of the dead 0:18:00.920 --> 0:18:05.560 and equity restrictions after CRIMEA was annexed by Russia. What 0:18:05.720 --> 0:18:09.240 we saw yesterday and again a build up after nine 0:18:09.520 --> 0:18:14.359 sanctions that restricted trading in non rubal denominated sovereign debt 0:18:14.880 --> 0:18:18.359 um is really this is only impacting primary market trade, 0:18:18.480 --> 0:18:22.679 So secondary market trades on Russian sovereign debt be it 0:18:22.800 --> 0:18:26.440 in euro be it in rouble are still permissible on 0:18:26.480 --> 0:18:29.679 the secondary market, and I think Treasury knew that this 0:18:29.720 --> 0:18:32.639 would have a muted impact, not kind of an adverse issue, 0:18:33.040 --> 0:18:35.960 similar to when the Oligarch sanctions were dropped in twenty 0:18:36.080 --> 0:18:39.680 eighteen and you saw a brief destabilization of the aluminum industry. 0:18:40.080 --> 0:18:43.879 So I think certainly you could touch upon greater restrictions 0:18:43.880 --> 0:18:46.240 and access to capital more broadly if you expand to 0:18:46.280 --> 0:18:49.359 the secondary market. I think it's very clear that the 0:18:49.400 --> 0:18:51.920 touch of just the primary market was only going to 0:18:52.000 --> 0:18:55.000 have a very limited response. Dan, I want to zoom 0:18:55.000 --> 0:18:56.679 out a little bit and go to something that Jeanie's 0:18:56.680 --> 0:18:59.560 Aino is talking about earlier, as she talked about politics 0:18:59.640 --> 0:19:02.960 and this President Biden, both domestically and now from a 0:19:03.000 --> 0:19:06.679 foreign policy perspective, she said that the bidens are very different, 0:19:06.680 --> 0:19:10.280 whether they're dealing with local issues or international ones. What's 0:19:10.280 --> 0:19:13.520 been your takeaway so far? Given his stance versus the Kremlin, 0:19:13.800 --> 0:19:17.400 given his stance with Iran, given his stance with China, 0:19:17.720 --> 0:19:20.960 I think there's been a very measured response to all 0:19:21.200 --> 0:19:24.159 of the issues that you've just described, whether it's North Korea, 0:19:24.240 --> 0:19:28.440 whether it's China, whether it's Iran, and certainly with Russia. 0:19:29.400 --> 0:19:32.080 On day one, the President announced the top the bottom 0:19:32.119 --> 0:19:34.840 review of the existing sanctions portfolio that had been in 0:19:34.880 --> 0:19:37.800 place for the last twenty plus years in the US 0:19:37.880 --> 0:19:42.359 to really understand the productivity the unforeseen consequences. I think 0:19:42.400 --> 0:19:44.760 the team that's been assembled at State Treasury and the 0:19:44.840 --> 0:19:48.320 National Security Apparatus have been experienced from the Bush and 0:19:48.359 --> 0:19:52.239 Obama administration, some from the Trump administration, and they know 0:19:52.320 --> 0:19:54.480 how to look around the corner to see the unforeseen, 0:19:54.600 --> 0:19:58.880 constantly unanticipated consequences. That being said, I think the market 0:19:58.960 --> 0:20:02.959 is still nervous. Friends of mine in multinational f i'es um, 0:20:03.000 --> 0:20:05.199 they're doing the analysis to see how these type of 0:20:05.200 --> 0:20:07.280 moves will ruin their days, much like some of the 0:20:07.359 --> 0:20:11.440 Chinese security restrictions ruined their Christmas break in December. Well, 0:20:11.480 --> 0:20:13.240 one reason why I love speaking with you, Dan is 0:20:13.280 --> 0:20:15.879 because you do have this bird's eye view in what 0:20:16.000 --> 0:20:18.879 companies are thinking in their risk offices in terms of 0:20:18.960 --> 0:20:21.760 charting at some sort of strategy, how do they get 0:20:21.800 --> 0:20:25.640 ahead of different administrations, and what's their main concern right 0:20:25.680 --> 0:20:29.000 now at the Biden administration about where the potential sanctions 0:20:29.000 --> 0:20:32.119 could come, where they could potentially be restricted going forward. 0:20:33.040 --> 0:20:35.640 So I think where what we see with this administration 0:20:35.760 --> 0:20:38.919 is certainly less unpredictability than what we've been seeing over 0:20:39.000 --> 0:20:42.240 the last four years. In particular, I think if you 0:20:42.320 --> 0:20:45.680 see some of the appointees of the Biden administration, them 0:20:45.720 --> 0:20:49.000 coming from a more mature sanctions and national security regime 0:20:49.000 --> 0:20:52.280 of the path, they know how to engage with institutions. 0:20:52.320 --> 0:20:55.720 So for some of these significant moves, um, you'll see 0:20:55.920 --> 0:20:59.480 Treasury reaching out the institutions in advance so they can 0:20:59.520 --> 0:21:01.680 prepare of them. Um. We saw this with Libya a 0:21:01.760 --> 0:21:04.600 number of years ago, where banks were notified in advance. 0:21:04.680 --> 0:21:07.480