WEBVTT - Bloomberg Wall Street Week - August 16th, 2024 0:00:00.280 --> 0:00:04.720 This is Bloomberg Wall Street Week. The global push into infrastructure, 0:00:04.760 --> 0:00:08.480 breaking the IPO logjam in text, the financial stories that 0:00:08.560 --> 0:00:11.680 shape our work, cutting inflation without losing jobs. Do we 0:00:11.800 --> 0:00:14.440 need rate cuts and if so, how many? Investing in 0:00:14.480 --> 0:00:16.400 the time of geopolitical. 0:00:15.680 --> 0:00:18.560 Turmoil Through the eyes of the most influential voices. 0:00:18.720 --> 0:00:22.480 Ten Rogueff Economists of Harvard, former FDIC had Shila Bert 0:00:22.680 --> 0:00:26.439 ge CEO, Larry Kulp, San Francisco fed President Mary Daily. 0:00:26.239 --> 0:00:30.240 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.440 --> 0:00:33.440 No summer break for fighting in Ukraine and the Middle East, 0:00:33.840 --> 0:00:37.680 changes at the top of Japan, Thailand and Starbucks and 0:00:37.720 --> 0:00:41.479 the US government malls breaking up Google. This is Bloomberg 0:00:41.479 --> 0:00:45.560 Wall Street Week. I'm David Weston this week. Greg Peters 0:00:45.600 --> 0:00:49.320 of PGM on how bond etf are transforming the fixed 0:00:49.400 --> 0:00:50.240 income market. 0:00:50.440 --> 0:00:53.279 So I think the growth is just beginning. 0:00:53.520 --> 0:00:56.680 Zach Liscow of Yale on the hurdles facing the Biden 0:00:56.720 --> 0:00:59.280 administration's race to build infrastructure. 0:01:00.240 --> 0:01:04.520 Has a longstanding difficulty building infrastructure. 0:01:04.680 --> 0:01:07.880 And Jonathan Klein at Hang Media on why legacy media 0:01:07.959 --> 0:01:10.280 companies are having so much trouble. 0:01:10.480 --> 0:01:13.000 It's a problem with the industry that they find themselves in. 0:01:26.000 --> 0:01:28.640 We start with the US CPI numbers out this week 0:01:28.640 --> 0:01:31.840 and welcome Jan Hattias Goldman Sachs chief economists to take 0:01:31.920 --> 0:01:34.399 us through what they tell us about the economy. So welcome, 0:01:34.440 --> 0:01:36.600 it's great to have you here. Jan. What did we 0:01:36.680 --> 0:01:38.160 learn this week about use economy? 0:01:38.600 --> 0:01:41.960 It's great to be here. I think the information we've 0:01:41.959 --> 0:01:46.280 gotten this week has been very encouraging on the growth side, 0:01:47.000 --> 0:01:53.800 mostly good news, another drop in jobless claims and clearly 0:01:53.880 --> 0:01:57.640 stronger than expected retail sales number that was very reassuring 0:01:58.280 --> 0:02:01.360 in light of the weaker employer I'M report for July 0:02:01.760 --> 0:02:05.880 and the concerns around the consumer at the bottom up 0:02:05.960 --> 0:02:09.200 level in some of the earnings reports. In the macro data, 0:02:09.280 --> 0:02:15.359 we're not seeing the consumer softening sharply, and I think 0:02:15.360 --> 0:02:19.680 that's the probably number one takeaway as far as economic 0:02:19.680 --> 0:02:22.920 activity is concerned. There were also some more mixed numbers 0:02:22.960 --> 0:02:26.320 from industrial production and housing starts, but I would put 0:02:26.360 --> 0:02:29.600 more weight on the consumption news than on those. 0:02:29.720 --> 0:02:33.160 We also are down to a two number starting with 0:02:33.200 --> 0:02:36.320 the two at least number on the headline CPI. So 0:02:36.440 --> 0:02:38.440 are we getting inflation and control? Is it going to 0:02:38.440 --> 0:02:40.040 continue in your opinion. 0:02:40.320 --> 0:02:45.160 I am very optimistic that inflation is largely in the 0:02:45.160 --> 0:02:49.160 rearview mirror. If we look at the July core PCE 0:02:49.680 --> 0:02:53.679 estimate that we get on the basis of CPI, PPI 0:02:53.800 --> 0:02:59.359 and import prices, we are at thirteen basis points, which 0:02:59.639 --> 0:03:03.560 is yet another sign that we're on our way back 0:03:03.639 --> 0:03:07.359 to two percent. Now in terms of year on year 0:03:07.440 --> 0:03:10.880 rates for core PC inflation, it's going to be difficult 0:03:10.960 --> 0:03:13.480 to make a lot of headway in the second half 0:03:13.520 --> 0:03:16.560 of the year because the year on year comparisons are 0:03:16.600 --> 0:03:21.040 becoming more difficult. We have very low sequential inflation rates 0:03:21.080 --> 0:03:26.280 in twenty twenty three, but I think on a three 0:03:26.320 --> 0:03:29.160 month annualized basis and a lot of the underlying trend 0:03:29.200 --> 0:03:34.440 measures are saying we're pretty close to two percent and 0:03:34.600 --> 0:03:37.480 this is no longer a major. 0:03:37.200 --> 0:03:41.800 Issue for monetary policy. Is always the case, there are 0:03:41.840 --> 0:03:43.680 some ups and downs, some things that are a little better, 0:03:43.720 --> 0:03:46.720 things that are little work was under the headline numbers, 0:03:46.880 --> 0:03:49.400 But what about housing? Did I give you any pause? 0:03:49.560 --> 0:03:53.840 And with respect to how much control we're getting over inflation, well. 0:03:53.760 --> 0:03:57.720 I think the rent numbers were a little higher than 0:03:57.760 --> 0:04:04.320 expected in the in the most recent release but if 0:04:04.320 --> 0:04:07.840 I look at the trend in rent, we are seeing 0:04:07.920 --> 0:04:11.920 a deceleration in rent in owner's equivalent rent. There are 0:04:11.920 --> 0:04:17.640 some alternative indicators from the Cleveland Fed and the Labor 0:04:17.680 --> 0:04:22.839 Department that look that breakdown rents into new leases and 0:04:23.520 --> 0:04:28.200 existing leases. Those are showing a clear trend towards improvement. 0:04:28.720 --> 0:04:32.280 And I think just based on our modeling of how 0:04:32.480 --> 0:04:38.960 new lease prices translate into the overall CPI numbers, there 0:04:39.000 --> 0:04:43.000 is a very high confidence that we'll see ongoing, gradual, 0:04:43.800 --> 0:04:47.360 gradual improvement. The other point I'd make on inflation is 0:04:47.520 --> 0:04:50.440 what are we seeing on the labor market. We've seen 0:04:50.640 --> 0:04:54.280 the labor market rebalance. The unemployment rate is drifted up 0:04:54.320 --> 0:04:58.160 to four point three percent. We've seen very large declines 0:04:58.200 --> 0:05:01.720 in job openings and quits. We've seen a very material 0:05:01.800 --> 0:05:05.680 deceleration in wage growth. The latest average hourly earnings number 0:05:06.120 --> 0:05:11.240 was only three point six percent, and that basically says 0:05:11.800 --> 0:05:15.320 we no longer have a significant labor cost issue. Unit 0:05:15.400 --> 0:05:18.120 labor costs were up only half a percent on a 0:05:18.160 --> 0:05:22.280 year on year basis in the second quarter. So all 0:05:22.320 --> 0:05:23.400 of that is very encouraging. 0:05:23.880 --> 0:05:26.640 Where are you right now on the possibility of recession? 0:05:26.760 --> 0:05:28.760 We started the year, a lot of economists were really 0:05:28.880 --> 0:05:31.800 almost predicting recession. Larry Summers, for example, this program is 0:05:31.800 --> 0:05:34.280 saying it's more than fifty percent likely. That's changed over 0:05:34.279 --> 0:05:35.840 the course of the year. Where are you on there 0:05:35.880 --> 0:05:36.359 right now? 0:05:36.520 --> 0:05:40.680 So we've been at we were at fifteen percent coming 0:05:40.680 --> 0:05:44.840 into the year. We lifted that from fifteen to twenty 0:05:44.880 --> 0:05:48.279 five percent on a twelve month forward basis after the 0:05:48.320 --> 0:05:52.400 employment numbers for July. Not only because of the employment numbers, 0:05:52.400 --> 0:05:56.120 we also had seen a couple of higher initial jobless 0:05:56.120 --> 0:05:59.640 claims numbers. We've seen a you know, some week survey evidence, 0:05:59.640 --> 0:06:04.400 we'd have some negative anecdotal information about the economy and 0:06:04.440 --> 0:06:08.240 the consumer in some of the earnings reports. So we 0:06:08.320 --> 0:06:12.640 lifted it somewhat, but I'd say twenty five basis points 0:06:12.839 --> 0:06:16.279 is still, of course, well below fifty still somewhat below 0:06:16.320 --> 0:06:19.000 the consensus. You know, I'd say at the margin, what 0:06:19.080 --> 0:06:22.599 we've seen over the last two weeks has been encouraging. 0:06:22.720 --> 0:06:26.479 So I think the likelihood is that that twenty five 0:06:26.520 --> 0:06:29.240 percent is going to come down again. I would like 0:06:29.279 --> 0:06:32.200 to see a little bit more information, especially again the 0:06:32.240 --> 0:06:37.520 next employment report, just given the predictive value that we've 0:06:37.560 --> 0:06:43.520 seen historically from labor market information for recession. That's encapsulated 0:06:43.600 --> 0:06:46.520 in the so called sum rule that if you see 0:06:47.000 --> 0:06:50.360 a half a percentage point increase on a year on 0:06:50.480 --> 0:06:53.359 year basis in the unemployment rate, historically, that's been a 0:06:53.440 --> 0:06:54.920 very strong recession predictor. 0:06:55.160 --> 0:06:56.279 I think there are some good. 0:06:56.160 --> 0:07:00.560 Reasons why that rule may not hold in problem doesn't 0:07:00.560 --> 0:07:03.600 hold in the current environment, in particular the fact that 0:07:04.279 --> 0:07:09.040 we've seen a very large increase in the labor force, 0:07:09.520 --> 0:07:13.440 very large increase in immigration, and that's really, in our 0:07:13.560 --> 0:07:15.440 view with the main reason for why we've seen in 0:07:15.440 --> 0:07:18.360 a higher unemployment rate. Employment is still growing at a 0:07:18.360 --> 0:07:23.680 good pace despite this latest somewhat softer number. Overall, still 0:07:23.720 --> 0:07:26.600 see very strong employment growth, and so it just seems 0:07:26.680 --> 0:07:29.240 like a different type of increase in the unemployment rate. 0:07:29.480 --> 0:07:33.880 That's probably not as predictive over a session, but it's 0:07:34.040 --> 0:07:37.400 hard to be sure. And that's why we are hedgering 0:07:37.440 --> 0:07:38.120 a little bit more. 0:07:38.240 --> 0:07:39.440 Yeah, and it's such a treat to have you on 0:07:39.440 --> 0:07:41.360 Well Street. We thank you for being here. As Jan 0:07:41.440 --> 0:07:45.960 Hatzias of Goldman Sachs. The market continued it's rebound, with 0:07:46.000 --> 0:07:47.960 the S and P five hundred having its best week 0:07:48.000 --> 0:07:50.640 of the year, adding three point nine percent to end 0:07:50.640 --> 0:07:53.200 the week at fifty five fifty four, putting it just 0:07:53.400 --> 0:07:56.280 under the median number the Bloomberg Elves are projected for 0:07:56.360 --> 0:07:59.200 the end of the year. The Nantnag did even better, 0:07:59.280 --> 0:08:01.960 adding five point two nine percent on the week, while 0:08:02.000 --> 0:08:04.840 the yield on the tenure was down six basis points 0:08:04.880 --> 0:08:07.040 to end the week at three point eight eight percent. 0:08:07.400 --> 0:08:09.080 Take us through the week in the market. We welcome 0:08:09.120 --> 0:08:12.360 back now kristin Bitterly City, head of Wealth at work, 0:08:12.440 --> 0:08:14.800 So welcome back. Great to have you, always hear Chris, 0:08:15.000 --> 0:08:17.160 So give us your stance about what happened. We've been 0:08:17.160 --> 0:08:19.240 through a wild ride over the last two weeks. And 0:08:19.280 --> 0:08:21.760 take us inside city. How did your shop react when 0:08:21.800 --> 0:08:23.800 all of us who are running around saying, oh, emergency 0:08:23.880 --> 0:08:24.280 rate cut? 0:08:24.480 --> 0:08:25.240 Sure, of course. 0:08:25.280 --> 0:08:27.640 I think what's interesting is at City Wealth, we've actually 0:08:27.680 --> 0:08:30.320 been pretty resolute in terms of our views this year. 0:08:30.360 --> 0:08:33.040 We started out this year thinking that we would get 0:08:33.080 --> 0:08:35.680 three interest rate cuts of about twenty five basis points, 0:08:35.880 --> 0:08:38.559 and that those cuts would not begin until the second half. 0:08:38.400 --> 0:08:38.840 Of the year. 0:08:39.160 --> 0:08:41.760 And so even though we've seen this wild repraising of 0:08:41.880 --> 0:08:44.320 rates throughout the course of the past couple of months, 0:08:44.320 --> 0:08:46.280 and we could even say year to date. We just 0:08:46.360 --> 0:08:48.240 thought that the FED would not get the data that 0:08:48.280 --> 0:08:51.400 they needed to confidently start cutting rates. And so what 0:08:51.480 --> 0:08:54.120 happened last week was pretty wild because I think the 0:08:54.120 --> 0:08:56.800 market once again got ahead of itself in terms of 0:08:56.920 --> 0:08:58.480 is there going to be an emergency cut? 0:08:58.640 --> 0:08:59.439 Are we locking in. 0:08:59.360 --> 0:09:01.800 A fifty base point cut? I think we're still at 0:09:01.840 --> 0:09:05.400 twenty five basis points because of this economic data that 0:09:05.440 --> 0:09:08.160 we're seeing. We'll get a good piece of economic data 0:09:08.400 --> 0:09:10.600 and then we'll get one that maybe is a little concerning. 0:09:10.640 --> 0:09:14.080 Take today, for example, we have the consumer sentiment data 0:09:14.120 --> 0:09:16.600 that came out better than expected, and then we had 0:09:16.600 --> 0:09:20.400 the data around construction that was worse than expected. So 0:09:20.440 --> 0:09:22.559 I think we're going to see this volatility in the data. 0:09:22.880 --> 0:09:25.920 But the good news is that inflation is on the 0:09:25.960 --> 0:09:29.480 trajectory that the FED needs, and that the labor when 0:09:29.520 --> 0:09:33.000 you look at the labor market, it's cooling, not contracting, 0:09:33.400 --> 0:09:35.320 And I think that's a sweet spot in terms of 0:09:35.360 --> 0:09:37.280 the Fed's position to be able to start cutting. 0:09:37.440 --> 0:09:39.440 Where are we in earnings because that drives a awful 0:09:39.440 --> 0:09:40.720 lot of stock prices. 0:09:40.360 --> 0:09:42.840 And that was another reason why last week. So just 0:09:42.880 --> 0:09:45.760 take like August third, for example, that really horrible day 0:09:45.800 --> 0:09:48.280 in the market, where if you got out on that 0:09:48.400 --> 0:09:50.679 date you would have actually missed out on a pretty 0:09:50.679 --> 0:09:53.040 substantial rally of about seven percent in the S and 0:09:53.040 --> 0:09:55.760 P five hundred since then, But the reason for it 0:09:55.800 --> 0:09:58.600 is earnings have actually been really resilient. If we go 0:09:58.679 --> 0:10:01.640 back to last year, last year we had about seven 0:10:01.640 --> 0:10:03.800 out of the eleven sectors in the S and P 0:10:03.920 --> 0:10:07.439 five hundred that we're experiencing in earnings recession. This year, 0:10:07.800 --> 0:10:10.280 we actually expect ten out of those eleven sectors at 0:10:10.320 --> 0:10:15.160 city to turn to earnings profitability. So earnings have actually surprised, 0:10:15.400 --> 0:10:17.800 and what we're seeing is really a broadening out of 0:10:17.800 --> 0:10:21.800 that story. It is no longer uniquely a magnificent seven story. 0:10:22.000 --> 0:10:24.640 We're starting to see it come through in earnings across 0:10:24.760 --> 0:10:27.800 various sectors, which is actually a reason to stay invested. 0:10:28.120 --> 0:10:28.320 Well. 0:10:28.600 --> 0:10:30.800 So we're going to ask exactly how many people are 0:10:30.800 --> 0:10:33.040 fully invested still at this point, because, as you point out, 0:10:33.200 --> 0:10:35.760 if on August third you'd gone to cash, you'd be 0:10:35.920 --> 0:10:38.520 sad right now to what extends there's still cash on 0:10:38.559 --> 0:10:39.120 the sidelines. 0:10:39.160 --> 0:10:41.320 I think there's still significant cash on the sidelines. You 0:10:41.320 --> 0:10:43.600 could look to money market funds and the flows that 0:10:43.640 --> 0:10:46.560 have come into money market funds as an example of that. 0:10:47.000 --> 0:10:48.880 So the latest numbers that I saw were about six 0:10:48.960 --> 0:10:51.600 point three trillion dollars in money market funds, and that 0:10:51.600 --> 0:10:55.200 doesn't include cash held in deposit accounts and other types 0:10:55.240 --> 0:10:58.200 of bank products. So when we think of other catalysts 0:10:58.280 --> 0:11:00.720 for the market, just think about this. If we do 0:11:00.840 --> 0:11:03.960 start to experience interest rate cuts, what's going to happen 0:11:04.040 --> 0:11:06.360 is all of that cash that is no longer receiving 0:11:06.640 --> 0:11:09.600 a five percent five percent plus interest rate is going 0:11:09.679 --> 0:11:12.280 to look for places to reinvest, and it's going to 0:11:12.320 --> 0:11:14.960 be a balance across equity markets and fixing come market. 0:11:15.120 --> 0:11:16.440 Chris, I don't want to let you go about before 0:11:16.440 --> 0:11:18.440 we talk about your new positions since we've seen your 0:11:18.559 --> 0:11:20.719 last You have a new position. Congratulations that, thank you 0:11:20.800 --> 0:11:22.440 so much. What it is, how is it different? Yeah? 0:11:22.480 --> 0:11:25.040 So I'm running our wealth at work business globally for City, 0:11:25.080 --> 0:11:28.080 and what that is is it's really workplace wealth solutions. 0:11:28.559 --> 0:11:31.360 This started with an area of our business that we've 0:11:31.360 --> 0:11:35.640 actually been dominating and had for over five decades, which 0:11:35.679 --> 0:11:38.200 is our law firm group. So where we bank entry 0:11:38.280 --> 0:11:43.000 level associates through to senior partners and institutional capital. And 0:11:43.040 --> 0:11:45.719 what's unique about it is it really brings the perspective 0:11:45.800 --> 0:11:48.360 of not only knowing you personally in terms of your 0:11:48.360 --> 0:11:51.760 wealth journey, but also looking through how is your industry 0:11:51.800 --> 0:11:55.080 impacted by various trends. So it's knowing your business and 0:11:55.160 --> 0:11:58.640 how to advise you professionally but also personally. And we've 0:11:58.679 --> 0:12:01.360 expanded that on a global base, says, but also looking 0:12:01.360 --> 0:12:05.720 at other segments like asset managers, professional services, and just 0:12:05.800 --> 0:12:09.880 other segments and sectors of different types of companies. So 0:12:10.080 --> 0:12:12.000 really exciting. But thanks for asking about it. 0:12:12.040 --> 0:12:14.360 Menaging the choir, We like lawyers here at Walls. We 0:12:14.400 --> 0:12:16.080 got to tell you. Thank you so much. Chris, great 0:12:16.080 --> 0:12:18.240 to have you with us. Thank you. Kristin Bitterly of 0:12:18.360 --> 0:12:23.360 City coming up. The Biden administration is proud of the 0:12:23.400 --> 0:12:27.240 over one trillion dollars in infrastructure it got enacted. We 0:12:27.280 --> 0:12:29.600 go through how long it will take before we see 0:12:29.640 --> 0:12:32.920 the results with Zach Liskau of the Yale Law School. 0:12:33.679 --> 0:12:37.439 If you look at government spending, our research and developments, 0:12:37.679 --> 0:12:40.559 we are behind pure countries, and we're behind where we. 0:12:40.559 --> 0:12:40.880 Used to be. 0:12:42.840 --> 0:12:45.280 That's next on Wall Street Week on Bloomberg. 0:12:52.200 --> 0:12:56.400 This is Bloomberg Wall Street Week with David Weston from 0:12:56.520 --> 0:13:03.959 Bloomberg Radio. 0:13:04.200 --> 0:13:06.560 This is Wall Street Week. I'm David Weston. The Biden 0:13:06.600 --> 0:13:09.720 administration prides itself on the investment it's making in clean 0:13:09.880 --> 0:13:12.800 energy and semiconductors, but it is having a little bit 0:13:12.840 --> 0:13:14.960 of trouble getting the money out the door. And one 0:13:15.000 --> 0:13:18.280 of the biggest beneficiaries, that's Intel, has announced large job 0:13:18.360 --> 0:13:21.280 cuts and the need to protect its cash pile. Yale 0:13:21.360 --> 0:13:24.440 Law Professor Zach Liscow, former Chief Economists at the OMB, 0:13:24.800 --> 0:13:28.520 has studied infrastructure investment and challenges in making it work, 0:13:28.559 --> 0:13:30.920 and we welcome now to a Wall Street Week. So, professor, 0:13:31.000 --> 0:13:32.280 thank you so much for being here. It's great to 0:13:32.320 --> 0:13:34.760 have you here. You have studied the question of you know, 0:13:34.760 --> 0:13:36.680 it's a good thing to have the intention of getting 0:13:36.880 --> 0:13:39.559 infrastructure investments made, it's a little harder to get it done, 0:13:39.559 --> 0:13:41.360 at least in the United States of America. What are 0:13:41.360 --> 0:13:43.600 the some of the impediments to that that the Biden 0:13:43.600 --> 0:13:45.280 administration may be facing right now. 0:13:46.200 --> 0:13:50.840 Yeah, great question, A pleasure to be here. So first 0:13:50.840 --> 0:13:53.840 I want to say a little bit on what we 0:13:53.920 --> 0:13:58.599 see on the ground now. So if you're talking about manufacturing, 0:13:59.120 --> 0:14:05.080 things actually look really good. What we're seeing is investments 0:14:05.240 --> 0:14:11.360 in manufacturing, building structures. It's the current levels of that 0:14:11.640 --> 0:14:16.320 are roughly double what they were from the period between 0:14:16.320 --> 0:14:20.520 twenty twenty nineteen. So we are just blowing out of 0:14:20.520 --> 0:14:23.720 the water the amount of investment. 0:14:23.360 --> 0:14:24.600 That we're making in manufacturing. 0:14:24.880 --> 0:14:28.240 This is a real terms adjusting for inflation, so a 0:14:28.280 --> 0:14:32.840 lot is getting built in terms of manufacturing, but the 0:14:33.240 --> 0:14:37.040 different kinds of investment. We also are making a big 0:14:37.080 --> 0:14:42.640 push and infrastructure and in particular things like transportation. And 0:14:43.160 --> 0:14:46.600 this is not because of this particular administration, but the 0:14:46.720 --> 0:14:53.280 US just has a long standing difficulty in building infrastructure, 0:14:53.320 --> 0:14:57.640 transportation infrastructure and cost effective ways. If you look at 0:14:58.000 --> 0:15:02.680 urban rail, so you know, within a city and it's 0:15:02.720 --> 0:15:06.880 on a rail, and you compare the US to other 0:15:07.960 --> 0:15:11.680 high media income countries on a per mile basis, the 0:15:11.840 --> 0:15:13.080 US ends. 0:15:13.320 --> 0:15:15.960 About two and a half times as much from iile. 0:15:16.760 --> 0:15:19.680 You compare to the lowest cost countries in Europe, countries 0:15:19.720 --> 0:15:23.080 like Spain, we spend about six times as much from ILE. 0:15:23.680 --> 0:15:27.200 And you know this is not good, Zach asked, someone 0:15:27.240 --> 0:15:29.560 who's studied this as an economist as well as a lawyer. 0:15:29.960 --> 0:15:32.680 I really studied the question of infrastructure. Let's go back 0:15:32.680 --> 0:15:35.320 to where you started. Is there a big difference between 0:15:35.360 --> 0:15:37.240 sort of the true public infrastructure if I can talk 0:15:37.720 --> 0:15:42.040 it that way, highways, rails, you know, water, electrical grid 0:15:42.040 --> 0:15:43.960 and things like that. On the one hand, and they 0:15:44.080 --> 0:15:46.240 had some things that the government may get involved in 0:15:46.360 --> 0:15:49.640 at least in subsidizing and really encouraging. But that also 0:15:49.720 --> 0:15:52.760 private corporations do. I mean, when you talk about building semiconductors, 0:15:52.760 --> 0:15:56.040 that's something typically United States we let private companies do. 0:15:56.320 --> 0:15:58.880 Is there a different way to approach those two questions. 0:15:59.440 --> 0:16:04.720 Yeah, So, you know, roads are public goods, makes a 0:16:04.720 --> 0:16:09.040 lot of sense for the government to be in charge 0:16:09.080 --> 0:16:14.200 of building them. Would be very problematic of a private 0:16:14.240 --> 0:16:16.120 company on the road in front of my street and 0:16:16.160 --> 0:16:18.680 we're like holding me each time I wanted to enter 0:16:18.680 --> 0:16:21.920 my house. That that would be a bad way of 0:16:22.000 --> 0:16:24.720 running things. So it makes a lot of sense to 0:16:24.760 --> 0:16:32.520 have the government owned the roads, the highways, and then 0:16:32.600 --> 0:16:35.480 to set contact out to the private sector to actually 0:16:35.520 --> 0:16:39.360 have them built. There's a whole different thing going on 0:16:39.600 --> 0:16:45.640 with manufacturing there makes we do not want the government 0:16:45.760 --> 0:16:50.920 to be the one actually building the semiconductors. We want 0:16:50.920 --> 0:16:54.360 the private sector to be doing that. You know, those 0:16:54.360 --> 0:16:56.920 are not public goods. Those are goods that are exchanged 0:16:57.680 --> 0:17:02.440 in you know, competitive markets. And for those you know 0:17:02.560 --> 0:17:06.760 we have in the case of chips, to say a 0:17:06.920 --> 0:17:12.159 national security reason to onshore those and us to provide 0:17:12.160 --> 0:17:16.520 government subsidies to provide them. There are climate reasons to 0:17:16.560 --> 0:17:22.800 provide subsidies to come to bring about the green economy 0:17:22.840 --> 0:17:27.720 in terms of energy production. And so I think it's 0:17:29.440 --> 0:17:33.040 good to take these two different approaches for transportation infrastructure, 0:17:34.040 --> 0:17:38.800 government designs it and it manages it, and then to 0:17:38.840 --> 0:17:42.800 have subsidies for these other private sector things which are 0:17:42.840 --> 0:17:43.879 often in manufacturing. 0:17:45.000 --> 0:17:47.600 Let me think, for Zach Liscal of the Yale Law School. 0:17:47.680 --> 0:17:51.160 Professor Liscow's paper for the Aspen Economic Strategy Group will 0:17:51.160 --> 0:17:54.880 be out of this fall. Arcley's launched the first ever 0:17:55.040 --> 0:17:58.080 bond ETF in Canada back in two thousand and what 0:17:58.240 --> 0:18:00.439 started out as a novelty has grown to be an 0:18:00.520 --> 0:18:04.119 over two trillion dollar asset class, changing the entire market 0:18:04.400 --> 0:18:07.040 to take us through fixed income ETFs and why they've 0:18:07.080 --> 0:18:11.000 grown so big. We're welcome now. Greg Peters, Cocio of 0:18:11.080 --> 0:18:13.320 PGM Fixed Income. Greg great to have you back with us. 0:18:13.320 --> 0:18:14.960 Thanks for being here, Thanks for having me, David, So 0:18:15.000 --> 0:18:16.840 take us to this world of bond ETFs. So a 0:18:16.880 --> 0:18:18.680 lot of us think about it in terms of stocks, 0:18:18.720 --> 0:18:20.800 but it's going to be quite a substantial part of 0:18:20.800 --> 0:18:21.240 the market. 0:18:21.400 --> 0:18:23.760 It is, and I think it's a poised to grow 0:18:23.840 --> 0:18:26.720 even more. As we talked about earlier, the global fixed 0:18:26.720 --> 0:18:29.000 income market is one hundred and twenty trillion, and so 0:18:29.080 --> 0:18:31.960 two trillion seems like a drop in the ocean. So 0:18:32.080 --> 0:18:35.360 I think the growth is just beginning. But I think 0:18:35.359 --> 0:18:39.639 the important aspect of ETF for bond investors is that 0:18:39.680 --> 0:18:44.399 it's changed how the market trades, and it's created more 0:18:44.440 --> 0:18:45.719 liquidity in the marketplace. 0:18:46.200 --> 0:18:48.879 And POSTGFC, it's allowed. 0:18:48.760 --> 0:18:52.320 To bond investors, I guess, to reliquify in ways that 0:18:52.359 --> 0:18:53.879 they didn't imagine prior to. 0:18:54.520 --> 0:18:57.560 So why has it grown so big? And you mentioned 0:18:57.600 --> 0:19:00.320 the Great Financial Crisis? There is that part of the cause, 0:19:00.400 --> 0:19:02.320 in the sense that there was a lot of regulations 0:19:02.320 --> 0:19:04.760 that came in after that that really made it a 0:19:04.800 --> 0:19:06.720 little harder for some of the dealers to keep big 0:19:06.760 --> 0:19:07.399 balance sheets. 0:19:07.600 --> 0:19:08.840 That's precisely right. 0:19:09.040 --> 0:19:13.760 The dealer balance sheets were really constrained post GFC. Through 0:19:14.160 --> 0:19:16.960 you know, the alphabet soup of different kind of regulations, 0:19:17.760 --> 0:19:22.840 and it really hurt the end investor because you, as 0:19:23.359 --> 0:19:27.720 a fix income manager, have to go through the dealer 0:19:27.760 --> 0:19:31.639 in order to transact. The ETF platform I call it 0:19:31.680 --> 0:19:36.480 the chassis. The infrastructure allows through the redeem and create 0:19:36.560 --> 0:19:42.080 process trading of individual bonds and ways that were unimaginable before. 0:19:42.119 --> 0:19:46.199 And so this, this you know, revolutionary, evolutionary type of 0:19:46.240 --> 0:19:49.760 process has really allowed fixing them to reliquify and trade 0:19:49.840 --> 0:19:50.320 much better. 0:19:50.680 --> 0:19:53.920 You mentioned one of the effects is increased liquidity. Back 0:19:54.000 --> 0:19:56.119 during the pandemic March of twenty twenty, we had some 0:19:56.119 --> 0:19:59.199 problems with liquidity. Do the body taps hold out? Is 0:19:59.200 --> 0:20:02.320 the possibility that they will be able to take through 0:20:02.320 --> 0:20:03.400 some of those rough patches. 0:20:03.840 --> 0:20:07.640 I hope, So you know, one event doesn't you know, 0:20:07.800 --> 0:20:10.680 make a declarative statement, of course, But it was really 0:20:10.720 --> 0:20:15.840 interesting back in March of twenty twenty, voice trading effectively 0:20:16.040 --> 0:20:20.199 shut down, and what you saw was through ETF and 0:20:20.240 --> 0:20:22.480 electronic trading, which is still only. 0:20:22.280 --> 0:20:24.200 About forty forty five. 0:20:24.040 --> 0:20:30.040 Percent, and the entire fixed income universe traded levels that 0:20:30.080 --> 0:20:32.240 we haven't seen before. So we had record levels of 0:20:32.320 --> 0:20:36.199 volumes at a time when it was really difficult, almost 0:20:36.200 --> 0:20:40.760 impossible to transact elsewhere. So I think that is a testament, 0:20:40.800 --> 0:20:44.280 of course, but each crisis is a little different. You 0:20:44.440 --> 0:20:46.600 just don't know, but I think the early signs are 0:20:46.640 --> 0:20:47.760 actually quite positive. 0:20:48.000 --> 0:20:51.119 You mentioned voice trading versus electronic trading, which is one 0:20:51.119 --> 0:20:54.000 of the advents here. As I understand it, stocks are 0:20:54.080 --> 0:20:57.000 more likely to be traded electronically rather than through voice. 0:20:57.200 --> 0:20:59.720 Why is the fixed income market behind in that is 0:21:00.080 --> 0:21:03.639 a matter of timing or are there's some inherent differences 0:21:03.720 --> 0:21:07.439 in bonds in part because there are so many different 0:21:07.480 --> 0:21:09.920 kinds of them, but that really keep you from doing 0:21:09.960 --> 0:21:12.040 more electronic transfer with bonds. 0:21:12.119 --> 0:21:13.240 I think it's a little bit of both. 0:21:13.320 --> 0:21:16.360 I think historically the fix and come market has been 0:21:16.800 --> 0:21:20.879 known late adopters. Also at the same time, as you mentioned, 0:21:21.240 --> 0:21:24.360 you know, unlike a single stock, you have multiple bonds 0:21:24.440 --> 0:21:25.680 off the name. 0:21:25.760 --> 0:21:29.120 So use IBM as an example. There's only one equity 0:21:29.200 --> 0:21:31.160 security to trade, but. 0:21:31.240 --> 0:21:34.919 You could have anywhere from fifty to you know, almost 0:21:34.920 --> 0:21:37.800 one hundred different cu SIPs of IBM. So it's just 0:21:37.920 --> 0:21:41.639 the complexity is just much more difficult, and the market 0:21:41.680 --> 0:21:45.320 is much more segmented as well. So I just think 0:21:45.359 --> 0:21:49.600 it's about time because if you think about complexity, that's 0:21:49.640 --> 0:21:53.600 where computers and machinery and algorithms can really. 0:21:53.880 --> 0:21:56.399 Add a lot of value. It's just been slow to 0:21:56.480 --> 0:21:58.040 adopt who. 0:21:57.880 --> 0:22:00.520 Are the most likely customers for the ETF. You think 0:22:00.560 --> 0:22:03.120 they're going to keep growing the bond ETFs, but who 0:22:03.160 --> 0:22:04.919