1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jailey. We bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg dot Com 5 00:00:23,920 --> 00:00:30,400 Speaker 1: and of course on the Bloomberg terminal. And you have 6 00:00:30,480 --> 00:00:33,200 Speaker 1: any joining us. Now you got any research, President, I'd 7 00:00:33,280 --> 00:00:36,160 Speaker 1: love to do this with you. You coined the term 8 00:00:36,320 --> 00:00:39,600 Speaker 1: bond vigilante decade ago, and many people have been asking 9 00:00:39,600 --> 00:00:42,160 Speaker 1: a question, where are the bond vigilantes with a yield 10 00:00:42,159 --> 00:00:45,120 Speaker 1: still at one sixty on tens, where are they at? Well? 11 00:00:45,159 --> 00:00:48,040 Speaker 1: I think they're actually back. You recalled. Back in August, 12 00:00:48,080 --> 00:00:52,640 Speaker 1: the bond yield was point to five as an all 13 00:00:52,680 --> 00:00:56,240 Speaker 1: time record low, and now we're somewhere around one point 14 00:00:56,240 --> 00:00:59,560 Speaker 1: six percent. So and much of that backup in bond 15 00:00:59,600 --> 00:01:03,040 Speaker 1: yields a heurred uh late last year and earlier this year, 16 00:01:03,120 --> 00:01:06,080 Speaker 1: and then they went on a siesta. It's been really 17 00:01:06,319 --> 00:01:10,640 Speaker 1: uh surprising to me that the bond yield has kind 18 00:01:10,640 --> 00:01:14,039 Speaker 1: of gone nowhere fast over the past couple of months. 19 00:01:14,560 --> 00:01:16,479 Speaker 1: But then again, I keep looking at the FED data 20 00:01:16,520 --> 00:01:18,480 Speaker 1: and the Fed keeps buying notes and bonds, so I 21 00:01:18,520 --> 00:01:20,920 Speaker 1: think that's the answers. The Fed has been doing his 22 00:01:21,080 --> 00:01:23,800 Speaker 1: best to keep the bond deals from going up. But 23 00:01:23,920 --> 00:01:25,800 Speaker 1: I do think they're coming back. I think the sast 24 00:01:25,920 --> 00:01:27,920 Speaker 1: is over. I think we're gonna see some bad inflation 25 00:01:28,000 --> 00:01:31,839 Speaker 1: numbers up ahead. Here just a continuation of the recent 26 00:01:31,880 --> 00:01:34,360 Speaker 1: bad trend. And you only high ground and this we 27 00:01:34,400 --> 00:01:36,319 Speaker 1: are honored to have you here on a June one. 28 00:01:36,560 --> 00:01:39,800 Speaker 1: It comes down to George Akerlof writing late in the sixties, 29 00:01:40,280 --> 00:01:44,040 Speaker 1: Mrs Akerlof, presently the Secretary of Treasury picking it up 30 00:01:44,040 --> 00:01:47,520 Speaker 1: in the middle eighties Olivier Blanchard with a definitive article 31 00:01:48,120 --> 00:01:52,200 Speaker 1: on the wage price spiral way in here. Is that 32 00:01:52,320 --> 00:01:56,840 Speaker 1: what's coming for two thousand twenty two. Well, I think anecdotally, 33 00:01:56,920 --> 00:01:59,800 Speaker 1: they're just so much out there suggesting that the labor 34 00:01:59,840 --> 00:02:03,240 Speaker 1: markets tight, and uh, you know what matters for for 35 00:02:03,320 --> 00:02:06,760 Speaker 1: wages is the extent to which employers view it as 36 00:02:06,840 --> 00:02:09,120 Speaker 1: a as a chronic problem. And I think it is 37 00:02:09,120 --> 00:02:12,600 Speaker 1: a chronic problem. It's you folks mentioned all the possibilities 38 00:02:12,600 --> 00:02:15,359 Speaker 1: of why the labor markets type right now, but I 39 00:02:15,400 --> 00:02:18,000 Speaker 1: think the most important one is demographics. We forgot to 40 00:02:18,000 --> 00:02:20,560 Speaker 1: have kids along the way here and there isn't just 41 00:02:21,960 --> 00:02:26,399 Speaker 1: John speak for yourself. And there is a question though 42 00:02:26,480 --> 00:02:29,840 Speaker 1: here going forward that there has been these frictions. Yes, 43 00:02:29,880 --> 00:02:33,160 Speaker 1: it's one thing that we haven't had enough kids generally collectively, 44 00:02:33,240 --> 00:02:35,840 Speaker 1: and our fertility rate collectively has gone down. On the 45 00:02:35,880 --> 00:02:38,480 Speaker 1: other hand, there is this idea that we had all 46 00:02:38,520 --> 00:02:40,480 Speaker 1: these people in the labor market a year ago and 47 00:02:40,520 --> 00:02:43,640 Speaker 1: now we don't write and that is something distinct. What 48 00:02:43,919 --> 00:02:47,200 Speaker 1: is blocking them from coming back online? What's your answer 49 00:02:47,240 --> 00:02:49,720 Speaker 1: to this mystery? Well, I've been looking at the labor 50 00:02:49,760 --> 00:02:53,440 Speaker 1: force data and it's definitely shows that seniors are retiring. 51 00:02:53,440 --> 00:02:56,640 Speaker 1: A lot of baby boomers who worked past sixty five 52 00:02:57,040 --> 00:03:00,360 Speaker 1: and some of them are now in their seventies. Um, 53 00:03:00,639 --> 00:03:03,280 Speaker 1: and uh, they've just decided, you know what, it's time 54 00:03:03,320 --> 00:03:06,320 Speaker 1: to just retire a meaning of life and all that. Uh. 55 00:03:06,360 --> 00:03:08,160 Speaker 1: And then I think you've made a very good point 56 00:03:08,200 --> 00:03:10,359 Speaker 1: on childcare. We do have a childcare problem in the 57 00:03:10,440 --> 00:03:12,440 Speaker 1: United States. We've had it for a long time. It 58 00:03:12,480 --> 00:03:16,120 Speaker 1: was exacerbated by the pandemic. And I think that school's 59 00:03:16,160 --> 00:03:18,880 Speaker 1: opened up as childcare facilities opened up, But we are 60 00:03:18,919 --> 00:03:21,480 Speaker 1: going to find people going back into the labor market. 61 00:03:21,560 --> 00:03:25,560 Speaker 1: But nevertheless, there really is a shortage of workers, particularly 62 00:03:25,560 --> 00:03:29,440 Speaker 1: skilled workers. And um, as you know, we've got almost 63 00:03:29,480 --> 00:03:33,959 Speaker 1: as uh many, we've got more almost as many job 64 00:03:34,000 --> 00:03:36,800 Speaker 1: openings as we have unemployee people that I want to 65 00:03:36,880 --> 00:03:38,800 Speaker 1: jump in. Just forgive me, Tom, please coming with this. 66 00:03:38,880 --> 00:03:42,280 Speaker 1: It came from Jim Plead. They sent in the ft 67 00:03:42,760 --> 00:03:44,880 Speaker 1: and he was talking about maybe looking at a different 68 00:03:44,920 --> 00:03:47,360 Speaker 1: metric and maybe this is exactly where you wanted to go, Tom, 69 00:03:47,640 --> 00:03:49,240 Speaker 1: But a lot is starting to advocate for the FED 70 00:03:49,280 --> 00:03:52,080 Speaker 1: to look at other measures of job market kindness. The 71 00:03:52,200 --> 00:03:56,640 Speaker 1: unemployment to job opening ratio at John Danny is not useful. 72 00:03:57,720 --> 00:04:00,080 Speaker 1: I think it's very useful, but but it right now 73 00:04:00,240 --> 00:04:04,160 Speaker 1: is indicating a lot of frictional unemployment, either a mismatching 74 00:04:04,280 --> 00:04:08,400 Speaker 1: skills or geographic mismatch, whatever it is. There's plenty of 75 00:04:08,480 --> 00:04:11,600 Speaker 1: jobs out there. Employers are just I mean and totally. 76 00:04:11,640 --> 00:04:15,360 Speaker 1: We see help pointed adds everywhere. But look, I think 77 00:04:15,400 --> 00:04:18,040 Speaker 1: I think the good news here is employers, if they can, 78 00:04:18,400 --> 00:04:20,840 Speaker 1: are going to use technology to increase productivity, and that 79 00:04:20,880 --> 00:04:24,240 Speaker 1: should be an important offset the next few years. And 80 00:04:24,480 --> 00:04:27,960 Speaker 1: what is the level of inflation just regular cp I 81 00:04:28,360 --> 00:04:30,680 Speaker 1: where you begin to see whispers of a time of 82 00:04:30,720 --> 00:04:33,840 Speaker 1: a younger yard. Denny, what's the jump point where we 83 00:04:33,880 --> 00:04:37,080 Speaker 1: get out to a new inflation? Well, like I keep 84 00:04:37,160 --> 00:04:41,920 Speaker 1: writing about the Roaring twenties as a possible scenario here 85 00:04:41,960 --> 00:04:45,159 Speaker 1: where productivity would be a tremendous offset to labor costs. 86 00:04:45,800 --> 00:04:48,680 Speaker 1: On the other hand, I also write about the nineteen seventies, 87 00:04:48,720 --> 00:04:51,719 Speaker 1: and that's when I was a bit younger, and uh, 88 00:04:51,839 --> 00:04:54,640 Speaker 1: I am concerned about that scenario. We're starting to see 89 00:04:54,720 --> 00:04:57,960 Speaker 1: some a lot of similarities. Food prices going up, energy 90 00:04:58,040 --> 00:05:02,359 Speaker 1: prices going up, the way just going up. However, in 91 00:05:02,400 --> 00:05:05,800 Speaker 1: the seventies, productivity eight growth absolutely collapsed, and I think 92 00:05:05,839 --> 00:05:08,760 Speaker 1: that's the big difference. But in the short term here 93 00:05:08,800 --> 00:05:11,279 Speaker 1: we clearly have not just only a base effect, but 94 00:05:11,320 --> 00:05:13,599 Speaker 1: we have a demand shock effect which has created a 95 00:05:13,640 --> 00:05:16,960 Speaker 1: supply shock effect. And I think we are gonna be 96 00:05:17,080 --> 00:05:19,560 Speaker 1: shocked at some of the inflation used over the next 97 00:05:19,640 --> 00:05:23,320 Speaker 1: few months, both on the CPI deflator and wage basis. 98 00:05:23,720 --> 00:05:25,120 Speaker 1: And I think I speak for all of us. It 99 00:05:25,160 --> 00:05:30,320 Speaker 1: has been white too long come back. So we're thinking Thursday, 100 00:05:30,960 --> 00:05:39,560 Speaker 1: President Rose Friday talking about the dynamics in this economy, 101 00:05:40,480 --> 00:05:43,520 Speaker 1: Falsemanian time, keen our most important discussion on the equity 102 00:05:43,560 --> 00:05:48,440 Speaker 1: markets right now. It is appropriate that as we enter June, 103 00:05:48,480 --> 00:05:53,880 Speaker 1: Michael Wilson of Morgan Stanley would quote Charles Dickens, we'd 104 00:05:53,880 --> 00:05:58,119 Speaker 1: never be ashamed of our tears that from great expectations. 105 00:05:58,160 --> 00:06:02,760 Speaker 1: Of course, Mike Wilson, this market goes up and up. 106 00:06:03,080 --> 00:06:06,880 Speaker 1: Let's say it's up thirty eight twelve months trailing. A 107 00:06:07,000 --> 00:06:09,120 Speaker 1: lot of people are on board, and yet there's so 108 00:06:09,240 --> 00:06:15,320 Speaker 1: many walls of worry frame our great expectations right now. Yeah, 109 00:06:15,360 --> 00:06:17,560 Speaker 1: thanks Tom, thanks for having me. I mean, yeah, that's 110 00:06:17,600 --> 00:06:20,120 Speaker 1: part of the story. I mean, the markets up a 111 00:06:20,120 --> 00:06:23,839 Speaker 1: lot because two things. Obviously, we've had a incredible recovery 112 00:06:24,320 --> 00:06:27,720 Speaker 1: so far, and the earnings have reflected that. There's been 113 00:06:27,800 --> 00:06:32,000 Speaker 1: tremendous operating leverage as the government has h subsidized the 114 00:06:32,080 --> 00:06:35,040 Speaker 1: unemployment cycle in a way we like we've never seen before. 115 00:06:35,520 --> 00:06:38,000 Speaker 1: And rates have remained low because of the support from 116 00:06:38,000 --> 00:06:42,120 Speaker 1: the Fed. So you've got a very potent cocktail for uh, 117 00:06:42,160 --> 00:06:44,560 Speaker 1: you know, for equities. Now. Where we are now is 118 00:06:44,600 --> 00:06:47,800 Speaker 1: we think that some of those expectations, particularly around earnings 119 00:06:47,800 --> 00:06:51,120 Speaker 1: growth and even economic growth have probably caught up to 120 00:06:51,279 --> 00:06:55,120 Speaker 1: reality and in some cases may have exceeded that. We 121 00:06:55,200 --> 00:06:57,240 Speaker 1: wrote about that this weekend, which is this is the 122 00:06:57,279 --> 00:07:00,640 Speaker 1: first time since the recovery began that we as we 123 00:07:00,680 --> 00:07:04,840 Speaker 1: look out in the consensus bottoms up estimates now for 124 00:07:05,000 --> 00:07:08,440 Speaker 1: SMP earnings are actually above what we think is achievable. 125 00:07:08,480 --> 00:07:10,120 Speaker 1: That's the first time that we can kind of say that, 126 00:07:10,640 --> 00:07:12,760 Speaker 1: and so that what that really means is that, you know, 127 00:07:12,760 --> 00:07:14,920 Speaker 1: the multiples probably have to come down a little bit 128 00:07:15,200 --> 00:07:18,280 Speaker 1: as we grow into kind of reality. And that's not 129 00:07:18,360 --> 00:07:19,960 Speaker 1: the end of the bull Market's not the end of 130 00:07:20,000 --> 00:07:22,800 Speaker 1: the cycle, but it does argue that it's going to 131 00:07:22,840 --> 00:07:24,720 Speaker 1: be a little tougher from here. Things are going to 132 00:07:24,800 --> 00:07:26,760 Speaker 1: chop around. They've already been doing that to some degree. 133 00:07:26,800 --> 00:07:28,560 Speaker 1: The average stock hasn't made a lot of progress in 134 00:07:28,560 --> 00:07:30,440 Speaker 1: the last couple of months, and you just got to 135 00:07:30,440 --> 00:07:32,760 Speaker 1: be more selective. And that's the stage of the cycle 136 00:07:32,800 --> 00:07:34,800 Speaker 1: we're in right now, all right, Mike. If I want 137 00:07:34,800 --> 00:07:37,400 Speaker 1: to be more selective, am I still selective in the 138 00:07:37,640 --> 00:07:39,920 Speaker 1: in the stocks that got me here over the last decade, 139 00:07:39,960 --> 00:07:41,920 Speaker 1: which is the Amazons and the apples of the world, 140 00:07:41,920 --> 00:07:44,640 Speaker 1: which have underperformed a little bit recently, or so I 141 00:07:44,680 --> 00:07:47,120 Speaker 1: stick with that rotation trade into some of the more cyclical, 142 00:07:47,440 --> 00:07:49,920 Speaker 1: cyclical areas of the market that have really done well 143 00:07:49,920 --> 00:07:52,840 Speaker 1: over the last year. So, yeah, Paul, let's talk about that. 144 00:07:52,880 --> 00:07:54,840 Speaker 1: Those are two different sort of questions. The first is 145 00:07:54,880 --> 00:07:58,280 Speaker 1: we do think that this cycle will lead to a 146 00:07:58,320 --> 00:08:00,760 Speaker 1: different form of leadership. We been running about that for 147 00:08:00,800 --> 00:08:03,760 Speaker 1: a while, as have others. And so that rotation that 148 00:08:03,840 --> 00:08:06,960 Speaker 1: you refer to kind of to the the value sectors. 149 00:08:07,040 --> 00:08:10,280 Speaker 1: Things that are geared towards higher inflation, higher nominal GDP, 150 00:08:10,480 --> 00:08:14,120 Speaker 1: higher volatile, more volatile economy should do better, and they have. 151 00:08:14,320 --> 00:08:16,960 Speaker 1: So we think that's sustainable, meaning that rotation we think 152 00:08:17,080 --> 00:08:20,840 Speaker 1: is going to play out over this economic cycle where 153 00:08:20,880 --> 00:08:25,400 Speaker 1: the value cohort actually participates more and in many cases winds. Now, 154 00:08:25,520 --> 00:08:28,640 Speaker 1: that doesn't mean that gross stocks though, can't do okay. 155 00:08:28,760 --> 00:08:30,480 Speaker 1: What it does mean, though, is we think you can't 156 00:08:30,520 --> 00:08:33,320 Speaker 1: overpay for that anymore like you have over last ten years. Well, 157 00:08:33,360 --> 00:08:36,839 Speaker 1: I hate to do you know, ready, Mr Wilson does 158 00:08:36,840 --> 00:08:39,719 Speaker 1: not speak about individual securities. With that said, we'll ask 159 00:08:39,760 --> 00:08:44,840 Speaker 1: you about Apple. I mean, my I love what you're saying, 160 00:08:45,920 --> 00:08:50,280 Speaker 1: But how growthy or value we are these loved big 161 00:08:50,360 --> 00:08:54,439 Speaker 1: cap texts. I think it depends on the stock I mean, 162 00:08:54,440 --> 00:08:58,040 Speaker 1: and we've been making that choice to where we try 163 00:08:58,120 --> 00:09:00,760 Speaker 1: to pick the ones that we think are easibly pricing 164 00:09:00,960 --> 00:09:03,720 Speaker 1: to continue to grow. So, for example, Google is on 165 00:09:03,720 --> 00:09:06,200 Speaker 1: our fresh Money by list, whereas some of the other 166 00:09:06,559 --> 00:09:09,400 Speaker 1: large cap grows stocks are not. So I think even 167 00:09:09,440 --> 00:09:12,640 Speaker 1: within that cohort, you need to be more selective. Some 168 00:09:12,760 --> 00:09:15,200 Speaker 1: of them are more expensive than they should be and 169 00:09:15,320 --> 00:09:18,000 Speaker 1: some can are fine. And and that's you know, I 170 00:09:18,000 --> 00:09:19,880 Speaker 1: think that's the trick here, Tom, is that you just 171 00:09:20,080 --> 00:09:23,040 Speaker 1: it's not a rising tide lifts all boats. And and 172 00:09:23,160 --> 00:09:25,800 Speaker 1: once again it doesn't mean they only value stacks can 173 00:09:25,840 --> 00:09:28,360 Speaker 1: work or only grows stocks can work. Now I think 174 00:09:28,400 --> 00:09:31,360 Speaker 1: both can work. But it's not an environment where you 175 00:09:31,400 --> 00:09:34,319 Speaker 1: can pay egregious multiples anymore for growth. And that that 176 00:09:34,360 --> 00:09:37,600 Speaker 1: era is over. Mike, I'm starting to hear a little 177 00:09:37,600 --> 00:09:42,400 Speaker 1: bit on the fringes talk about talk about tapering. When 178 00:09:42,440 --> 00:09:45,400 Speaker 1: does that become a concern for the folks that do 179 00:09:45,559 --> 00:09:49,200 Speaker 1: have the courage to be in this market? Well, I mean, look, 180 00:09:49,200 --> 00:09:51,439 Speaker 1: that's that's a function of the recovery. I mean, we 181 00:09:51,920 --> 00:09:54,040 Speaker 1: this is no different than any other cycle where you know, 182 00:09:54,080 --> 00:09:56,559 Speaker 1: the Federal Reserve and other central banks have to begin 183 00:09:56,640 --> 00:10:01,040 Speaker 1: to know ease back on policy support because because quite frankly, 184 00:10:01,080 --> 00:10:03,880 Speaker 1: they've been successful. You know, I mean everybody is afraid 185 00:10:03,920 --> 00:10:06,400 Speaker 1: of tapering or tightening by the FED. But let me 186 00:10:06,400 --> 00:10:09,080 Speaker 1: give you another standing. If they're not tightening or tapering, 187 00:10:09,160 --> 00:10:11,960 Speaker 1: that means they failed. So I would not be rooting 188 00:10:12,000 --> 00:10:14,200 Speaker 1: for the FED to not be tap tapering or tightening 189 00:10:14,280 --> 00:10:16,240 Speaker 1: later this year. That's our call. We think later this 190 00:10:16,320 --> 00:10:18,280 Speaker 1: year they will be talking about it for here and 191 00:10:18,360 --> 00:10:20,320 Speaker 1: next year they will be tapering. And that's another reason 192 00:10:20,360 --> 00:10:22,800 Speaker 1: why multiples can come down once again. That's a better 193 00:10:22,840 --> 00:10:26,200 Speaker 1: outcome than policy failing and growth rolling over and then 194 00:10:26,200 --> 00:10:28,079 Speaker 1: you have a real problem. So I think we should 195 00:10:28,080 --> 00:10:30,320 Speaker 1: all be cheering for tapering at some point and just 196 00:10:30,360 --> 00:10:33,600 Speaker 1: deal with it. Sandard pours up twenty four points four 197 00:10:33,679 --> 00:10:36,680 Speaker 1: two to seven down, not near thirty five thousand, but 198 00:10:36,720 --> 00:10:41,000 Speaker 1: getting there. Thirty four thousand, seven six three two thirty 199 00:10:41,040 --> 00:10:43,280 Speaker 1: four points. The VIX was in on a sixteen handle, 200 00:10:43,400 --> 00:10:48,080 Speaker 1: seventeen point one three on the VIX the yield iron 201 00:10:48,160 --> 00:10:51,800 Speaker 1: board Paul on point six to percent. Al Right, Mike, 202 00:10:51,840 --> 00:10:55,439 Speaker 1: what are the sectors that you're talking to your clients 203 00:10:55,480 --> 00:10:59,959 Speaker 1: about right now? Yeah? I mean, look, we as I said, earlier, Paul. 204 00:11:00,040 --> 00:11:02,880 Speaker 1: We we do think that this reflationary story is real, 205 00:11:03,360 --> 00:11:05,960 Speaker 1: that the Fed will achieve success in that regard. They 206 00:11:06,000 --> 00:11:09,120 Speaker 1: will be tightening policy at some point, and that favors 207 00:11:09,520 --> 00:11:12,480 Speaker 1: certain types of sectors. We think financials and materials are 208 00:11:12,480 --> 00:11:14,679 Speaker 1: the two that look most attractive to us, where they're 209 00:11:14,679 --> 00:11:18,120 Speaker 1: still reasonably priced, they're both geared to benefiting from that 210 00:11:18,280 --> 00:11:21,080 Speaker 1: sort of new environment. And then we also, like you know, 211 00:11:21,320 --> 00:11:25,880 Speaker 1: defensively oriented, high quality sectors like healthcare, parts of the 212 00:11:25,880 --> 00:11:28,839 Speaker 1: technology sector look attractive. But once again you've got to 213 00:11:28,880 --> 00:11:31,360 Speaker 1: be a bit more selective. So it's a combination. It's 214 00:11:31,360 --> 00:11:34,600 Speaker 1: a combination of reflation stories and these you know, grows 215 00:11:34,640 --> 00:11:37,440 Speaker 1: stocks that are a reasonably priced in those four areas 216 00:11:37,440 --> 00:11:40,920 Speaker 1: that we're focused on. Mike Wilson on the UM, on international, 217 00:11:41,200 --> 00:11:44,360 Speaker 1: on the nuances A small cap big cap, Where is 218 00:11:44,440 --> 00:11:48,640 Speaker 1: the play there that seems to be most attractive right now? Yeah, 219 00:11:48,640 --> 00:11:49,960 Speaker 1: I mean, as you know, Tom, I mean e M 220 00:11:50,000 --> 00:11:52,720 Speaker 1: has really changed over the last twenty years in terms 221 00:11:52,760 --> 00:11:55,360 Speaker 1: of composition, and you know, quite frankly, the e M 222 00:11:55,440 --> 00:11:58,240 Speaker 1: index now looks like then as deck in many ways. Yeah, 223 00:11:58,120 --> 00:12:01,079 Speaker 1: why really, well said, I mean, remember Mike, I mean 224 00:12:01,120 --> 00:12:04,200 Speaker 1: we can wax philosophical here. It was very simple. You 225 00:12:04,280 --> 00:12:08,080 Speaker 1: buy you that the phone company or the concrete company. Right, 226 00:12:08,679 --> 00:12:13,280 Speaker 1: that's right, buy the utility or should buy the concrete. Yeah, 227 00:12:13,320 --> 00:12:16,480 Speaker 1: somebody's gonna generate from for infrastructure spending. So so I 228 00:12:16,520 --> 00:12:18,800 Speaker 1: think that right now, I would argue that some of 229 00:12:18,800 --> 00:12:23,520 Speaker 1: the the cyclical plays within em look relatively more attractive 230 00:12:23,559 --> 00:12:25,240 Speaker 1: than some of the ones in the US because they've 231 00:12:25,240 --> 00:12:27,439 Speaker 1: been held back. And the reason for that is obvious, 232 00:12:27,600 --> 00:12:30,720 Speaker 1: right that the virus has been more debilitating for a 233 00:12:30,760 --> 00:12:33,400 Speaker 1: lot of these third world sort of you know, poor 234 00:12:33,800 --> 00:12:37,000 Speaker 1: emerging market countries. But eventually they're gonna get has success. 235 00:12:37,040 --> 00:12:40,559 Speaker 1: They're gonna have vaccination programs and herd immunity and they'll 236 00:12:40,559 --> 00:12:42,840 Speaker 1: And so there is probably a latent part of this 237 00:12:42,960 --> 00:12:45,880 Speaker 1: recovery cycle that lends itself to looking to some of 238 00:12:45,880 --> 00:12:48,840 Speaker 1: these areas that have been really held back, and I 239 00:12:48,880 --> 00:12:51,360 Speaker 1: think that's the way we're thinking about it. Hey, Mike, 240 00:12:51,400 --> 00:12:53,440 Speaker 1: I just can't help myself. Once again, I found myself 241 00:12:53,480 --> 00:12:56,960 Speaker 1: typing an a MC equity go into my Bloomberg terminal. 242 00:12:57,280 --> 00:13:00,040 Speaker 1: It's up another fifteen percent. When you see these and 243 00:13:00,120 --> 00:13:02,400 Speaker 1: its stocks that we refer to them now at like 244 00:13:02,480 --> 00:13:05,920 Speaker 1: a game stopper on a MC, A grizzled market veteran 245 00:13:06,000 --> 00:13:09,760 Speaker 1: like you that brings some bells that what's going on 246 00:13:09,800 --> 00:13:13,120 Speaker 1: in this marketplace? And we kind of at a top here. Well, 247 00:13:13,160 --> 00:13:14,800 Speaker 1: I think what it really speaks to is we still 248 00:13:14,840 --> 00:13:18,560 Speaker 1: have excessive liquidity and we have animal spirits that are 249 00:13:18,720 --> 00:13:22,080 Speaker 1: you know, are perculating. Uh, and so these speculative parts 250 00:13:22,120 --> 00:13:24,440 Speaker 1: of the market are not completely have not completely been 251 00:13:24,480 --> 00:13:26,600 Speaker 1: snuffed out. Now what I would say, though, Paul said, 252 00:13:27,040 --> 00:13:30,160 Speaker 1: we have seen speculative parts of the market get hammered 253 00:13:30,160 --> 00:13:32,720 Speaker 1: this year. So I do think folks who are playing 254 00:13:32,720 --> 00:13:34,560 Speaker 1: in that area need to be a bit more careful 255 00:13:34,559 --> 00:13:37,240 Speaker 1: than maybe they think they should be, because you know, 256 00:13:37,280 --> 00:13:39,199 Speaker 1: the market is onto this idea that like where did 257 00:13:39,200 --> 00:13:41,720 Speaker 1: he get peaked? And the speculative nature of the market 258 00:13:41,760 --> 00:13:45,240 Speaker 1: probably is peaked too, So I'm not I think, I 259 00:13:45,240 --> 00:13:48,800 Speaker 1: think that part of the market is vulnerable quite Frankly, Michaelson, 260 00:13:48,840 --> 00:13:51,200 Speaker 1: thank you so much. Always a joy with Morgan Stanley 261 00:13:51,240 --> 00:14:00,480 Speaker 1: this morning. Out of all their equity strategy, let's get 262 00:14:00,559 --> 00:14:03,199 Speaker 1: right to it. This conversation is too important. Genin ways 263 00:14:03,280 --> 00:14:06,040 Speaker 1: chemical Engineering out of Berkeley and has put together a 264 00:14:06,160 --> 00:14:10,080 Speaker 1: storied career in the cell side of integrated oil. Actually 265 00:14:10,120 --> 00:14:13,160 Speaker 1: looking at the American oil companies, gine I got a 266 00:14:13,240 --> 00:14:15,480 Speaker 1: whole bunch of ways to go here, including the climate 267 00:14:15,559 --> 00:14:18,800 Speaker 1: change uproar Exxon, But I do have to focus at 268 00:14:18,840 --> 00:14:23,120 Speaker 1: seventy dollars a barrel on the responsiveness and dynamics of 269 00:14:23,240 --> 00:14:27,960 Speaker 1: oil price. To say, xceon mobiles free cash flow. Is 270 00:14:28,040 --> 00:14:31,520 Speaker 1: EXCEN a real oil company? Now? Are they a bank 271 00:14:31,800 --> 00:14:34,320 Speaker 1: that happens to run oil? Which is it? And what 272 00:14:34,360 --> 00:14:37,920 Speaker 1: are they gonna do with seventy dollars a barrel? Thanks 273 00:14:37,920 --> 00:14:40,640 Speaker 1: for having me on Tom that that's a very interesting question. 274 00:14:40,680 --> 00:14:44,000 Speaker 1: We do think there are a real company at seventy 275 00:14:44,000 --> 00:14:46,280 Speaker 1: dollars a barrel. There are a lot of options, but 276 00:14:46,760 --> 00:14:50,480 Speaker 1: I think that the main drivers of major stock performance 277 00:14:50,520 --> 00:14:54,920 Speaker 1: recently has been toohold dividend sanctity and timing of cash 278 00:14:54,920 --> 00:14:58,200 Speaker 1: at turns to cash atturns and shareholders, and so at 279 00:14:58,240 --> 00:15:01,600 Speaker 1: seventy dollars, we think it's a matter of when and 280 00:15:01,640 --> 00:15:06,600 Speaker 1: not if that XCEN starts returning incremental cash to shareholders. 281 00:15:06,920 --> 00:15:10,800 Speaker 1: And we think that could probably happen because that's when 282 00:15:10,880 --> 00:15:13,480 Speaker 1: they get that's when they get within the range of 283 00:15:13,520 --> 00:15:17,120 Speaker 1: their debt reduction targets. Their ten year per year return 284 00:15:17,520 --> 00:15:21,680 Speaker 1: is a travesty. Their twenty year ten year return is 285 00:15:21,680 --> 00:15:25,800 Speaker 1: our CEOs get fired. What's the new religion at x 286 00:15:25,880 --> 00:15:29,720 Speaker 1: on Mobile, Well, the new religion is that there's been 287 00:15:29,760 --> 00:15:33,480 Speaker 1: a paradigm shift in energy. Broadly, I would say there's 288 00:15:33,520 --> 00:15:36,320 Speaker 1: a focus on go forward cash returns and there's a 289 00:15:36,440 --> 00:15:40,960 Speaker 1: higher significant, high gradient XSON for the projects going forward, 290 00:15:41,280 --> 00:15:45,160 Speaker 1: which should exactly change the track record of the uh 291 00:15:45,320 --> 00:15:47,880 Speaker 1: core r o CE going forward. So there's a paradigm 292 00:15:47,960 --> 00:15:51,320 Speaker 1: change and energy focus on free cash flow, focused on 293 00:15:51,360 --> 00:15:56,359 Speaker 1: capital discipline, and the current management team is very um 294 00:15:56,360 --> 00:15:59,640 Speaker 1: focused on reducing capex to the lower end of the 295 00:15:59,720 --> 00:16:03,240 Speaker 1: range this year and they dramatically lowered the medium term 296 00:16:03,320 --> 00:16:07,600 Speaker 1: capics to billion, which is about ten billion lower than 297 00:16:07,640 --> 00:16:10,320 Speaker 1: it was before. So we think that the go forward 298 00:16:10,360 --> 00:16:13,360 Speaker 1: Excellent is a much different company than the prior ten 299 00:16:13,440 --> 00:16:16,560 Speaker 1: years that you just mentioned. How, Hi, Jenine, do prices 300 00:16:16,600 --> 00:16:20,520 Speaker 1: have to go before US shale producers, before marginal US 301 00:16:21,280 --> 00:16:24,720 Speaker 1: oil drillers actually get back into the market and produce more. 302 00:16:26,400 --> 00:16:29,360 Speaker 1: That's a good question. I think that's everybody's fear, is 303 00:16:29,400 --> 00:16:33,680 Speaker 1: that higher oil prices comes more US supply. But what 304 00:16:33,800 --> 00:16:36,160 Speaker 1: we've noticed in our companies, not just on the US 305 00:16:36,240 --> 00:16:38,640 Speaker 1: major side, but also with the large cap us E 306 00:16:38,760 --> 00:16:42,040 Speaker 1: and Keys, is that the supply response has been very 307 00:16:42,280 --> 00:16:45,280 Speaker 1: muted to higher oil prices, and we don't see that 308 00:16:45,400 --> 00:16:47,920 Speaker 1: changing in the next couple of years. And that goes 309 00:16:47,960 --> 00:16:51,160 Speaker 1: back to the paradigm shift that we talked about. Investors 310 00:16:51,240 --> 00:16:54,600 Speaker 1: know that it's an hour never for these companies to 311 00:16:54,720 --> 00:16:57,320 Speaker 1: prove that they're real companies if they can return cash 312 00:16:57,360 --> 00:17:00,280 Speaker 1: to shareholders, and so we think that the suppliers spons 313 00:17:00,320 --> 00:17:04,200 Speaker 1: will be very needed going forward. Generally speaking, our companies 314 00:17:04,240 --> 00:17:08,119 Speaker 1: now are much more vocal and aware of the macro 315 00:17:08,560 --> 00:17:12,240 Speaker 1: conditions around them, indicating that right now the world doesn't 316 00:17:12,280 --> 00:17:16,080 Speaker 1: need their oil, but they're looking for global inventories to stabilize. There, 317 00:17:16,080 --> 00:17:18,760 Speaker 1: looking for purtailments to come back, and they're looking for 318 00:17:18,800 --> 00:17:21,720 Speaker 1: oil demand to come back to twenty nineteen levels before 319 00:17:21,720 --> 00:17:25,560 Speaker 1: they even considered growth. Um. The one caveat there is 320 00:17:25,600 --> 00:17:29,320 Speaker 1: we're keeping our eye on private production given that it's 321 00:17:29,320 --> 00:17:33,400 Speaker 1: become a much bigger part of the U supply picture. So, Janine, 322 00:17:33,560 --> 00:17:36,840 Speaker 1: how much of what you're seeing with respect of discipline 323 00:17:37,040 --> 00:17:39,439 Speaker 1: has to do with what you're talking about, which is 324 00:17:39,480 --> 00:17:41,400 Speaker 1: that it might take some time for things to get 325 00:17:41,400 --> 00:17:43,800 Speaker 1: back to the levels of demand. And how much has 326 00:17:43,840 --> 00:17:46,720 Speaker 1: to do with the push by shareholders for climate change 327 00:17:46,720 --> 00:17:50,480 Speaker 1: activism and some sort of response from the fossil fuel producers. 328 00:17:51,520 --> 00:17:55,080 Speaker 1: I think it's both. I think that the capital discipline 329 00:17:55,119 --> 00:17:57,159 Speaker 1: is alive and well and we keep seeing more and 330 00:17:57,200 --> 00:18:00,000 Speaker 1: more data points for that. And I think the push 331 00:18:00,119 --> 00:18:03,920 Speaker 1: for climate change really is making companies more aware that 332 00:18:04,000 --> 00:18:06,800 Speaker 1: they they've got to look at the overall macro picture. 333 00:18:06,840 --> 00:18:10,199 Speaker 1: It's not just every company out for itself. And with 334 00:18:10,320 --> 00:18:14,400 Speaker 1: investors demanding climate change, the energy transition is only going 335 00:18:14,400 --> 00:18:18,320 Speaker 1: in one direction, so um, that kind of biases production lower. 336 00:18:18,680 --> 00:18:22,280 Speaker 1: And let's not forget that investors are really demanding returns 337 00:18:22,640 --> 00:18:25,639 Speaker 1: and cash or turns on and of capital going forward, 338 00:18:25,720 --> 00:18:28,320 Speaker 1: which historically this group has not done a very good job. 339 00:18:28,480 --> 00:18:30,800 Speaker 1: I mean, what does Engine Number one want from the 340 00:18:30,960 --> 00:18:33,880 Speaker 1: X on board X on leadership and do you disagree 341 00:18:33,920 --> 00:18:39,800 Speaker 1: with them? Well, we don't necessarily disagree with the nominees 342 00:18:39,880 --> 00:18:43,400 Speaker 1: that Engine one has proposed. I think certainly they all 343 00:18:43,480 --> 00:18:47,720 Speaker 1: have merits, and broadly speaking, I think that the market 344 00:18:47,840 --> 00:18:50,680 Speaker 1: really wants to have change in the X on board 345 00:18:50,800 --> 00:18:53,720 Speaker 1: so I think engine one is really looking for transparency 346 00:18:53,840 --> 00:18:57,240 Speaker 1: and for more energy experience. Um where we kind of 347 00:18:57,280 --> 00:19:01,920 Speaker 1: differ from other maybe opinion is that we don't necessarily 348 00:19:02,000 --> 00:19:05,199 Speaker 1: think that a major change in the board or the 349 00:19:05,240 --> 00:19:09,120 Speaker 1: strategy of Exxon would necessarily benefit shareholders. And this kind 350 00:19:09,119 --> 00:19:11,520 Speaker 1: of goes back to your first question and that we 351 00:19:11,560 --> 00:19:14,560 Speaker 1: think the current management team has done a really good 352 00:19:14,680 --> 00:19:19,000 Speaker 1: job changing the complexion of the company going forward. So 353 00:19:19,119 --> 00:19:22,439 Speaker 1: between one maintaining the dividend last year when oil prices 354 00:19:22,440 --> 00:19:27,320 Speaker 1: were crashing, to reducing capex to historically low levels from 355 00:19:27,359 --> 00:19:30,280 Speaker 1: what you would expect them to do, and three most 356 00:19:30,320 --> 00:19:34,000 Speaker 1: recently executing on quarters, we think that the management team 357 00:19:34,040 --> 00:19:36,600 Speaker 1: is actually doing a pretty good job right now. Um So, 358 00:19:36,640 --> 00:19:39,520 Speaker 1: a major shakeup we don't think would be the watershed 359 00:19:39,560 --> 00:19:42,639 Speaker 1: moment that maybe others do. But we do think that 360 00:19:42,680 --> 00:19:46,400 Speaker 1: the company would benefit from lowering capex further than near 361 00:19:46,520 --> 00:19:50,560 Speaker 1: term and lowering capex to at or below the um 362 00:19:50,800 --> 00:19:52,840 Speaker 1: low end of their medium term budget. Could you put 363 00:19:52,880 --> 00:19:55,280 Speaker 1: some numbers on that, christ Jannine, And it's this upstream 364 00:19:55,320 --> 00:19:58,840 Speaker 1: campex and how big would that camp? Big? Right? So, 365 00:19:58,920 --> 00:20:02,359 Speaker 1: this is upstream capec that we're talking about. Um So, 366 00:20:02,480 --> 00:20:05,920 Speaker 1: for example, if they go to about nineteen and a 367 00:20:05,960 --> 00:20:08,679 Speaker 1: half twenty billion of capex, we think that they can 368 00:20:08,720 --> 00:20:11,800 Speaker 1: get all of their plans done in the medium term 369 00:20:11,840 --> 00:20:14,159 Speaker 1: and produce a decent amount of free cash flow. So 370 00:20:14,440 --> 00:20:17,280 Speaker 1: free cash flow is really the key for the sector 371 00:20:17,440 --> 00:20:20,480 Speaker 1: because that's how you get cash return to share holders. 372 00:20:20,720 --> 00:20:24,120 Speaker 1: That's how companies prove that they're real companies. And so 373 00:20:24,200 --> 00:20:27,080 Speaker 1: for Exxon, if they do that, what we're saying is 374 00:20:27,119 --> 00:20:30,280 Speaker 1: lowering capex at our blow. The midpoint of the medium 375 00:20:30,359 --> 00:20:33,879 Speaker 1: term guide um, we see free cash flow averaging about 376 00:20:33,920 --> 00:20:37,760 Speaker 1: three point six billion per year on average through six 377 00:20:37,920 --> 00:20:41,400 Speaker 1: or sorry, and that would allow them to both pay 378 00:20:41,440 --> 00:20:44,960 Speaker 1: down gross debt and increase the dividend. Janine grab a 379 00:20:45,000 --> 00:20:49,280 Speaker 1: cash up. Tommy conversation to Janine Why the Bankley Senia analyst. 380 00:20:55,760 --> 00:20:59,360 Speaker 1: He writes brilliant notes for Pick Day of Switzerland, pick 381 00:20:59,480 --> 00:21:02,880 Speaker 1: A Wealth Management. We're thrilled that Thomas Costridge could join 382 00:21:02,960 --> 00:21:07,760 Speaker 1: us on the American economy this morning. Thomas, my mathematics 383 00:21:07,960 --> 00:21:10,680 Speaker 1: is a buoyant six point five percent all in this 384 00:21:10,800 --> 00:21:14,240 Speaker 1: year and a still buoyant three point two percent. We 385 00:21:14,320 --> 00:21:18,760 Speaker 1: ever jotted four point eight four point nine percent economy 386 00:21:18,880 --> 00:21:22,880 Speaker 1: for two years running. That's pretty good, isn't it. That's 387 00:21:22,920 --> 00:21:29,080 Speaker 1: basically double the run rate, right, right, And that's what 388 00:21:29,280 --> 00:21:33,080 Speaker 1: you would expect after you know, strong fiscal spending, several 389 00:21:33,160 --> 00:21:36,280 Speaker 1: rounds of checks, so physical support has been really huge, 390 00:21:36,640 --> 00:21:39,800 Speaker 1: and to some degree, I think actually the economy could 391 00:21:39,800 --> 00:21:41,760 Speaker 1: do even better than what it is doing now. The 392 00:21:41,800 --> 00:21:45,200 Speaker 1: economy is strong. But again, if constumers were really going 393 00:21:45,240 --> 00:21:48,400 Speaker 1: out and spending all that money that they saved last year, 394 00:21:48,640 --> 00:21:51,399 Speaker 1: we could go up ten percent. So yeah, we're up 395 00:21:51,440 --> 00:21:54,160 Speaker 1: six point five percent this year. It could be better. 396 00:21:54,200 --> 00:21:56,320 Speaker 1: It could be worse though as well. There can be 397 00:21:56,400 --> 00:22:00,200 Speaker 1: leakages or surprises within the calculus of what we The 398 00:22:00,240 --> 00:22:02,280 Speaker 1: blunt instrument is we're all going to go out and 399 00:22:02,320 --> 00:22:06,000 Speaker 1: spend it. No one believes that what's leaked within the 400 00:22:06,080 --> 00:22:09,600 Speaker 1: calculus that you're focused on. What could be the surprise 401 00:22:10,040 --> 00:22:15,719 Speaker 1: to a more moderate consumption, right. And the equation is, 402 00:22:15,840 --> 00:22:18,200 Speaker 1: you know, we look at the pile of savings we're 403 00:22:18,240 --> 00:22:20,720 Speaker 1: speaking here at a pile of around two point two 404 00:22:20,760 --> 00:22:24,720 Speaker 1: trillion dollars right around you know, one trillion that consumers 405 00:22:24,760 --> 00:22:28,120 Speaker 1: have not spent and one trillion that's the excess income 406 00:22:28,160 --> 00:22:30,719 Speaker 1: that they got last year. Because the federal government were 407 00:22:30,800 --> 00:22:34,240 Speaker 1: so generous, so to two point two trillion dollars And 408 00:22:34,280 --> 00:22:36,960 Speaker 1: the question is are they going to spend it now? 409 00:22:37,000 --> 00:22:38,679 Speaker 1: Are they going to wait to spend it? Are they 410 00:22:38,680 --> 00:22:41,480 Speaker 1: going just to save it or repay the credit card? Yet? 411 00:22:41,800 --> 00:22:44,600 Speaker 1: And so far the indicators we have suggests that there 412 00:22:44,680 --> 00:22:47,879 Speaker 1: is a degree of caution out there. You know, people 413 00:22:47,920 --> 00:22:51,080 Speaker 1: are saving, they are still not unsure about their recovery. 414 00:22:51,720 --> 00:22:54,240 Speaker 1: There's all the so called hair cut effect, which means 415 00:22:54,280 --> 00:22:56,720 Speaker 1: that if you don't go to the headdresser once, you 416 00:22:56,840 --> 00:23:00,360 Speaker 1: usually you don't go twice the following week. Right, So 417 00:23:00,480 --> 00:23:02,159 Speaker 1: you know, what has not been spent will not be 418 00:23:02,200 --> 00:23:05,479 Speaker 1: spent um. But bottom line is that you know, um, 419 00:23:05,680 --> 00:23:08,399 Speaker 1: the saving spile is there, but it will probably be 420 00:23:08,520 --> 00:23:12,800 Speaker 1: spent gradually, which is good news because also it means 421 00:23:13,040 --> 00:23:16,800 Speaker 1: the US economy will avoid overheating. Thomas is not just 422 00:23:16,840 --> 00:23:19,439 Speaker 1: a guess what they inputs to go into that? How 423 00:23:19,480 --> 00:23:20,480 Speaker 1: do you know? How do you come up with the 424 00:23:20,480 --> 00:23:25,000 Speaker 1: forecast of what happens with savings? Right? So what we 425 00:23:25,040 --> 00:23:27,400 Speaker 1: have data, We have consumer surveys and so far down 426 00:23:27,400 --> 00:23:30,920 Speaker 1: at that great Actually in Europe consumer surveys are back 427 00:23:30,960 --> 00:23:33,320 Speaker 1: to their pre crisis levels. In the U S they're 428 00:23:33,359 --> 00:23:35,840 Speaker 1: not if you look at Conference Board Consumer Survey, the 429 00:23:35,880 --> 00:23:39,480 Speaker 1: Michigan Survey, and even in some details I'm a bit cautious. 430 00:23:39,480 --> 00:23:41,919 Speaker 1: If you look at housing attentions in the US, they 431 00:23:41,960 --> 00:23:43,480 Speaker 1: are actually going down, which is a bit of a 432 00:23:44,240 --> 00:23:47,720 Speaker 1: worry because you know, people should be feeling more confident 433 00:23:47,720 --> 00:23:50,359 Speaker 1: they should spend, you know, they should buy houses, cars 434 00:23:50,359 --> 00:23:52,639 Speaker 1: and so on and so forth. So we have data 435 00:23:52,680 --> 00:23:56,560 Speaker 1: from consumer surveys which suggests some caution. We have also 436 00:23:56,680 --> 00:23:59,560 Speaker 1: data about April spending, so right, I mean they received 437 00:23:59,560 --> 00:24:01,720 Speaker 1: the checks in March, we already know what they did 438 00:24:01,720 --> 00:24:03,960 Speaker 1: in April, and in April people who are quite cautious 439 00:24:04,040 --> 00:24:06,840 Speaker 1: in their spending. So if we extrapolate that, we have 440 00:24:07,200 --> 00:24:10,000 Speaker 1: the outcome that I just described, which is strong growth 441 00:24:10,040 --> 00:24:12,639 Speaker 1: in the second quarter, but after that we're likely to 442 00:24:12,680 --> 00:24:16,560 Speaker 1: see growth normalizing back down towards say, around four percent 443 00:24:16,640 --> 00:24:18,639 Speaker 1: in the second half of the year. Thomas, what's the 444 00:24:18,680 --> 00:24:22,280 Speaker 1: implication if we basically had helicopter money in the US 445 00:24:22,400 --> 00:24:25,200 Speaker 1: and even in parts of Europe and that doesn't lead 446 00:24:25,240 --> 00:24:30,680 Speaker 1: to sustained inflation? Right? I think one key conclusion for 447 00:24:30,720 --> 00:24:34,400 Speaker 1: the next recession is that we may have fiscal policy 448 00:24:34,480 --> 00:24:37,640 Speaker 1: which may put a time stamp on spending. You may 449 00:24:37,680 --> 00:24:40,080 Speaker 1: be forced in the next recession when you receive a 450 00:24:40,160 --> 00:24:42,960 Speaker 1: check to spend in to spend it within the next 451 00:24:42,960 --> 00:24:45,760 Speaker 1: three months or six months, but not like I mean, 452 00:24:45,800 --> 00:24:48,560 Speaker 1: the problem with that phisical spending in the US was that, 453 00:24:48,680 --> 00:24:51,680 Speaker 1: I mean, there was no people didn't tell you that 454 00:24:51,720 --> 00:24:53,880 Speaker 1: you had to to put it back in the economy. 455 00:24:53,920 --> 00:24:56,480 Speaker 1: And I think that was maybe a fragility or of 456 00:24:56,520 --> 00:24:59,480 Speaker 1: a weakness that could be addressed in the next recession. Now, 457 00:24:59,520 --> 00:25:02,440 Speaker 1: in terms of inflation outlook, you know, you don't see 458 00:25:02,440 --> 00:25:05,600 Speaker 1: wage growth or you know, excessive wage growth. You do 459 00:25:05,680 --> 00:25:08,119 Speaker 1: not see credit growth. I mean, credit growth in the 460 00:25:08,200 --> 00:25:14,200 Speaker 1: US remains still subdued. And third, inflation expectations remain very 461 00:25:14,280 --> 00:25:17,879 Speaker 1: much uh low. Okay, there is an exception in the 462 00:25:18,000 --> 00:25:21,040 Speaker 1: Michigan survey, but I think that's an exception overall. If 463 00:25:21,040 --> 00:25:24,880 Speaker 1: you look at inflation expectations, they remain very much anchored. 464 00:25:24,880 --> 00:25:27,439 Speaker 1: So I do not see an inflation phenomenon kicking in. 465 00:25:27,520 --> 00:25:30,560 Speaker 1: I see inflation in commodities. I see inflation in some 466 00:25:31,000 --> 00:25:33,280 Speaker 1: supply chains and some you know, goods and so on 467 00:25:33,280 --> 00:25:37,280 Speaker 1: and so forth, But there's no generalized uh increasing inflation. 468 00:25:37,359 --> 00:25:39,800 Speaker 1: So just to put together this idea of the conservative 469 00:25:39,920 --> 00:25:42,119 Speaker 1: way that people have been using their spending, which is 470 00:25:42,400 --> 00:25:45,320 Speaker 1: or their savings excuse me, which is what you're signaling 471 00:25:45,600 --> 00:25:48,080 Speaker 1: with this friction in the labor market with people not 472 00:25:48,160 --> 00:25:51,199 Speaker 1: going back into the labor force. Could this be that 473 00:25:51,280 --> 00:25:54,200 Speaker 1: people are using their cushion to stay home for longer 474 00:25:54,520 --> 00:25:56,720 Speaker 1: and that there will they will only go back once 475 00:25:56,760 --> 00:25:58,840 Speaker 1: that cushion is used up. I mean, is this sort 476 00:25:58,880 --> 00:26:01,160 Speaker 1: of part of the mystery in your view that we're 477 00:26:01,160 --> 00:26:05,560 Speaker 1: seeing in the labor market. Yeah, and and so far. 478 00:26:05,600 --> 00:26:08,400 Speaker 1: I mean, we we had a bad employment report last time. 479 00:26:08,880 --> 00:26:10,600 Speaker 1: I think I think we really need to to to 480 00:26:10,720 --> 00:26:13,480 Speaker 1: show firmer conclusion. We need to really wait for this 481 00:26:13,520 --> 00:26:15,680 Speaker 1: one on on on Friday. I mean, this one will 482 00:26:15,760 --> 00:26:19,919 Speaker 1: really be key to seeing whether there is a genuine 483 00:26:19,960 --> 00:26:23,480 Speaker 1: impact from the generosity of the federal government with regards 484 00:26:23,520 --> 00:26:27,439 Speaker 1: to unemployment benefits. I think it does hamper the return 485 00:26:27,480 --> 00:26:31,080 Speaker 1: to work on However, It's true there are other issues. 486 00:26:31,800 --> 00:26:35,240 Speaker 1: One also is that you know, you know, firms I've 487 00:26:35,240 --> 00:26:38,240 Speaker 1: gotten more efficient in this, uh in this during the 488 00:26:38,280 --> 00:26:40,800 Speaker 1: crisis and during the recovery. You know, you you the 489 00:26:40,840 --> 00:26:43,760 Speaker 1: skills have changed as well, you know, the economy has changed, 490 00:26:43,960 --> 00:26:46,960 Speaker 1: and so you don't need the same workers that you did. Uh, 491 00:26:47,080 --> 00:26:49,320 Speaker 1: you know, the same ones that you you used before 492 00:26:49,359 --> 00:26:52,080 Speaker 1: the crisis. Uh. You know, think about the green economy. 493 00:26:52,320 --> 00:26:55,359 Speaker 1: You need a new range of skills for the green economy, 494 00:26:56,040 --> 00:26:59,040 Speaker 1: and you know those workers the skills are not there. Um, 495 00:26:59,119 --> 00:27:02,080 Speaker 1: So that that's a another issue. The timas your inflation 496 00:27:02,240 --> 00:27:05,359 Speaker 1: view maybe a tiltsa you and Hans Golden Sex, but 497 00:27:05,400 --> 00:27:08,080 Speaker 1: I really make note that it tilts to David Rosenberg 498 00:27:08,600 --> 00:27:13,159 Speaker 1: up in Toronto. Rosenberg looks for disinflation and he really 499 00:27:13,400 --> 00:27:18,000 Speaker 1: under he really estimates rather a go east tone, if 500 00:27:18,400 --> 00:27:21,040 Speaker 1: you're gonna buy growth, you've got to go to the 501 00:27:21,040 --> 00:27:27,480 Speaker 1: Pacific RIM does picktail agree? Right? I mean in terms 502 00:27:27,480 --> 00:27:30,920 Speaker 1: of the recovery, um, you know, definitely Asia has been 503 00:27:31,040 --> 00:27:36,359 Speaker 1: you know, has definitely rebounded much more quickly. And also, um, 504 00:27:36,400 --> 00:27:38,119 Speaker 1: you know, you know a few months ago it was 505 00:27:38,160 --> 00:27:40,719 Speaker 1: already rebounding. So definitely Asia is the place to go 506 00:27:40,800 --> 00:27:44,520 Speaker 1: for for growth. However, right now the good spot is 507 00:27:44,520 --> 00:27:48,399 Speaker 1: actually Europe. You know, Europe is recovering. Um, the vaccination 508 00:27:48,520 --> 00:27:51,640 Speaker 1: is also accelerating. I think, you know, this summer could 509 00:27:51,640 --> 00:27:56,000 Speaker 1: be a good, good, good good growth, uh for for Europe. Now, 510 00:27:56,720 --> 00:27:59,760 Speaker 1: in the longer run, we were still more optimistic about 511 00:27:59,760 --> 00:28:03,360 Speaker 1: the U S DON DON Europe, including for demographic reasons 512 00:28:03,520 --> 00:28:06,440 Speaker 1: but also the technological leadership than we really see in 513 00:28:06,480 --> 00:28:08,959 Speaker 1: the US. Thomas, Thank you, sir. Got to catch up, 514 00:28:08,960 --> 00:28:13,960 Speaker 1: Thomas Costan, West Management Senior Economists. This is the Bloomberg 515 00:28:13,960 --> 00:28:18,320 Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from 516 00:28:18,359 --> 00:28:21,760 Speaker 1: seven to ten am Eastern on Bloomberg Radio and on 517 00:28:21,800 --> 00:28:26,119 Speaker 1: Bloomberg Television each day from six to nine am for 518 00:28:26,359 --> 00:28:31,280 Speaker 1: insight from the best in economics, finance, investment, and international relations. 519 00:28:31,760 --> 00:28:36,440 Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, 520 00:28:36,560 --> 00:28:40,160 Speaker 1: Bloomberg dot com, and of course on the terminal. I'm 521 00:28:40,200 --> 00:28:42,920 Speaker 1: Tom Keene, and this is Bloomberg