WEBVTT - Surveillance: Lira Weakness With Amoroso 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa A. Brawnowitz Jailely, 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 --> 0:00:29.520 dot Com and of course on the Bloomberg Terminal. And 0:00:29.600 --> 0:00:32.840 Benjamin bernanke would say, with his history, as with Milton 0:00:32.920 --> 0:00:36.560 Friedman and Anna Schwartz, it's always in every case about 0:00:36.560 --> 0:00:40.199 the banking and financial system which is under stress. That 0:00:40.280 --> 0:00:43.760 is a good introduction to Anastasia m Arosso for years 0:00:43.880 --> 0:00:47.800 covering Eastern Europe and all and now with I Capital 0:00:47.880 --> 0:00:51.880 Network with a much broader remit Anastasia. Let's go back 0:00:51.920 --> 0:00:55.400 a couple of years and speak of the Turmoil link 0:00:55.560 --> 0:00:59.720 in a higher oil price, real inflation worries that Mr 0:00:59.760 --> 0:01:03.120 a the Want has some would say self inflicted in 0:01:03.160 --> 0:01:08.640 the destabilization of Turkey. How idiosyncratic is it or can 0:01:08.720 --> 0:01:12.880 it be a contagion? Well, Tom, I do think at 0:01:12.920 --> 0:01:15.800 this moment it is idiosyncratic to Turkey and there's just 0:01:15.840 --> 0:01:18.040 too many issues in Turkey that have been building up 0:01:18.080 --> 0:01:21.279 for too long, you know, the current account deficit issues, 0:01:21.360 --> 0:01:24.479 you know, the rundown of the reserves, and when inflation 0:01:24.600 --> 0:01:28.040 is running, the last thing you do is cut interest rates. 0:01:28.200 --> 0:01:30.920 So this is a bit of a self inflicted damage here, 0:01:30.959 --> 0:01:33.680 and I don't think it's representative of other things that 0:01:33.720 --> 0:01:37.480 are happening in emerging markets, but perhaps identifying pockets of 0:01:37.560 --> 0:01:40.280 vulnerability is once against something that we need to do. 0:01:40.680 --> 0:01:44.720 Who has the twin deficits, who has low reserves and 0:01:44.959 --> 0:01:48.000 you know, who may not be able to withstand hips 0:01:48.160 --> 0:01:51.160 from the Federal Reserve and and higher dollar That might 0:01:51.160 --> 0:01:53.280 be one of the questions that we have for emerging 0:01:53.360 --> 0:01:56.480 markets in two but bradly speaking, a lot of them 0:01:56.480 --> 0:01:59.120 are much improved since point. Though. There's also a larger 0:01:59.200 --> 0:02:02.760 question here of air Duan fighting free markets and this 0:02:02.840 --> 0:02:06.080 idea of how much on a broader level of level 0:02:06.520 --> 0:02:10.320 policymakers are trying to fight free markets and trying to 0:02:10.560 --> 0:02:15.120 jaw bone down prices or job bone up valuations. How 0:02:15.160 --> 0:02:19.240 do you operate as an investor at a time when policymakers, 0:02:19.280 --> 0:02:21.720 and I'm thinking of the Federal Reserve in particular, is 0:02:21.760 --> 0:02:24.160 trying to keep a status quo. And we heard from 0:02:24.200 --> 0:02:26.800 your in timor earlier, the markets will win because they 0:02:26.840 --> 0:02:29.920 do not want to disrupt them. Well, I think the 0:02:29.960 --> 0:02:34.320 markets do ultimately prevail, and the supply demand balances prevail. 0:02:34.400 --> 0:02:36.520 And just to go back to the oil reserves and 0:02:36.560 --> 0:02:39.040 the release of the strategic patrolling reserve for a moment, 0:02:39.240 --> 0:02:42.079 it is a temporary move. I think it's kind of 0:02:42.160 --> 0:02:45.280 the only thing that's within a policy control at the moment. 0:02:45.320 --> 0:02:47.400 But it is going to be a small move. I 0:02:47.440 --> 0:02:50.120 will say, there was the release reserve that we're seeing 0:02:50.280 --> 0:02:53.440 is more than consensus was expecting. But even if we're 0:02:53.440 --> 0:02:56.520 released thirty million barrels, that was likely to translate into 0:02:56.520 --> 0:02:59.120 a downturn in price of two dollars a barrel or so, 0:02:59.240 --> 0:03:01.360 and so we probably going to see something more than that. 0:03:01.840 --> 0:03:04.040 Of course, a lot of it was fundloaded. But I 0:03:04.400 --> 0:03:07.760 do agree that this is just a temporary sense of 0:03:07.800 --> 0:03:10.920 control that I think policymakers are trying to exercise. But 0:03:11.000 --> 0:03:13.080 at the end of the day, it is what is 0:03:13.080 --> 0:03:16.840 supplied demand going to be? And for the broader economy, 0:03:16.960 --> 0:03:19.320 what is demand going to be? And was inflation going 0:03:19.360 --> 0:03:21.640 to do? So that's what the policymakers really need to 0:03:21.639 --> 0:03:24.280 respond to. Well, what strikes me about this reserve release. 0:03:24.320 --> 0:03:27.160 Anastasia is that we've seen it three times emergency releases 0:03:27.160 --> 0:03:30.160 in US history. It was during Desert Storm Katrina, and 0:03:30.240 --> 0:03:33.280 then when with the question of Libya in two thousand eleven. 0:03:33.360 --> 0:03:35.800 All of those were because you couldn't get the capacity, 0:03:35.840 --> 0:03:37.880 you didn't have access to that production. That's not the 0:03:37.960 --> 0:03:40.760 issue here. You could see a ramping up of output 0:03:40.920 --> 0:03:43.360 for OPEC Plus, or you could see shale players start 0:03:43.440 --> 0:03:45.680 to pump more oil. They're just not doing it. So 0:03:45.720 --> 0:03:49.600 how does that make this different? Yeah, so it does 0:03:49.720 --> 0:03:52.240 set up a bit of a fight here, I will say, 0:03:52.280 --> 0:03:55.800 because clearly that's not something OPEC Plus wanted to see happen, 0:03:56.160 --> 0:04:00.400 is to have this coordinated of strategic release. But and 0:04:00.440 --> 0:04:03.800 that's why they're starting to talk about potentially, um, you know, 0:04:04.000 --> 0:04:07.960 not ramping out their production. But the reality that OPEC 0:04:08.080 --> 0:04:10.800 has to grapple with is that we are likely to 0:04:10.840 --> 0:04:14.880 be in a surplus market next year versus the deficit 0:04:14.960 --> 0:04:17.560 that we've had. So I think they're going to calibrate 0:04:17.600 --> 0:04:20.080 their response carefully to that very quickly. In a stagia, 0:04:20.120 --> 0:04:23.080 do we need a strategic bitcoin reserve? Let's go here 0:04:23.120 --> 0:04:28.320 present wheelhouse. Well, I do think more and more companies 0:04:28.360 --> 0:04:32.279 and more and more individuals are building out their cryptocurrency reserves, 0:04:32.279 --> 0:04:36.400 and I would expand that beyond bitcoin, tim because Bitcoin 0:04:36.480 --> 0:04:41.600 has been a great trade this year because inflation was surging, 0:04:41.720 --> 0:04:44.240 and because the FIT was not doing anything about it. 0:04:44.520 --> 0:04:46.760 Now that the dollars moving higher and the FET is 0:04:46.800 --> 0:04:50.000 seemingly going to do something about inflation next year, bitcoin 0:04:50.120 --> 0:04:52.360 has lost a little bit of a shine. So there's 0:04:52.360 --> 0:04:54.200 two things I would say about that. First of all, 0:04:54.240 --> 0:04:56.640 you take a step back and look at the broader 0:04:56.680 --> 0:04:59.760 adoption trends of something like bitcoin, and I do think 0:04:59.760 --> 0:05:03.640 that's going to continue to grow in chursion notwithstanding, but 0:05:03.760 --> 0:05:08.279 near term there's other cryptocurrencies that I think do play 0:05:08.680 --> 0:05:12.000 a good role in the cryptocurrency reserve. Your sport, Annastasia 0:05:12.040 --> 0:05:14.920 and Rosso, thank you so much there with terrific perspective 0:05:14.920 --> 0:05:22.640 on the Lavan and over to Eastern Europe. This is 0:05:22.680 --> 0:05:25.440 a joy and an immense honor of Mark McCormick. By 0:05:25.560 --> 0:05:28.839 chance with us now as we see an emerging market 0:05:28.960 --> 0:05:33.440 currency unravel if you're just joining us, Turkish Lira is 0:05:33.480 --> 0:05:37.320 in full collapse. Mark McCormick with TD Securities has been 0:05:37.360 --> 0:05:40.560 resilient dollar all year. Marks thrilled to have you on 0:05:40.680 --> 0:05:43.840 at this historic moment for the people of Turkey. I 0:05:43.920 --> 0:05:47.120 was at at three point two standard deviations half an 0:05:47.120 --> 0:05:50.320 hour ago. We've now collapsed out to three point six 0:05:50.400 --> 0:05:54.880 standard deviations, getting very close to what the textbooks would 0:05:54.920 --> 0:05:58.599 say is a point of crisis four standard deviations out. 0:05:58.839 --> 0:06:04.640 How close is turn key to unraveling their financial system? Well, 0:06:04.640 --> 0:06:06.440 things are having me Yeah, I think to start there, 0:06:06.279 --> 0:06:08.360 we're already pretty much there in terms of the major 0:06:08.400 --> 0:06:10.520 pivot point. I think what we're seeing here is there's 0:06:10.520 --> 0:06:13.240 two factors. There's the local factor, the global factor, and 0:06:13.360 --> 0:06:15.640 there's a negative feedback loop. And the local factor is 0:06:15.640 --> 0:06:18.280 there's zero credibility and how the government is going to 0:06:18.360 --> 0:06:20.839 manage his finances, and there's zero credibility and how the 0:06:20.880 --> 0:06:23.960 central bank will operate within that framework. So the market 0:06:24.040 --> 0:06:26.320 is completely lost confidence. And again, when we get to 0:06:26.400 --> 0:06:29.440 these kind of inflection points, it becomes a nonlinear rather 0:06:29.480 --> 0:06:31.800 than a linear discussion. And this is where we kind 0:06:31.800 --> 0:06:34.560 of get to this four standard deviation momentum. At some 0:06:34.640 --> 0:06:37.440 point someone will step in in terms of whether or 0:06:37.440 --> 0:06:39.360 not it's the market. It's going to be offered a 0:06:39.400 --> 0:06:42.000 tremendous matter of risk premium and a carry. But we're 0:06:42.000 --> 0:06:44.360 in an environment now. If you think about what's driving 0:06:44.600 --> 0:06:47.880 markets on the global site, it's liquidity. The dollar is 0:06:47.960 --> 0:06:50.760 rallying largely because liquidity is coming out of the G 0:06:50.839 --> 0:06:54.040 ten bond markets. And so to think about these emerging markets, 0:06:54.040 --> 0:06:56.120 which again no one has a lot of confidence in 0:06:56.160 --> 0:06:57.680 the central bank. No, it's a lot a lot of 0:06:57.680 --> 0:07:00.920 confidence in government. No one's buying too your Turkey swaps, 0:07:00.960 --> 0:07:04.720 no one's buying CDs is no one's participating in Turkey, 0:07:04.800 --> 0:07:09.040 which exacerbates that. Mark McCormick, the heat of ben Espernanci 0:07:09.120 --> 0:07:14.600 of Princeton University is in crisis. Watch the banks TV 0:07:14.760 --> 0:07:19.040 Securities of Canada has a huge global reach across Europe. 0:07:19.080 --> 0:07:23.440 Out of your London desk, what is the financial solidity 0:07:23.600 --> 0:07:29.480 right now of the Turkish banks and their finance system? Well, yeah, 0:07:29.520 --> 0:07:32.520 that's that's something in terms of our general connection that 0:07:32.560 --> 0:07:35.000 we're gonna have access to. But I think again a 0:07:35.000 --> 0:07:37.200 big part of it is how the markets responding and 0:07:37.280 --> 0:07:40.480 how you know, conversations we're having with clients about these 0:07:40.520 --> 0:07:43.080 type of topics. It really kind of comes around to 0:07:43.160 --> 0:07:45.600 if you think about how these uh, you know, international 0:07:45.600 --> 0:07:48.680 investors are participating. Everyone wants to talk about it, no 0:07:48.680 --> 0:07:50.520 one wants to do anything about it. And I think 0:07:50.560 --> 0:07:54.200 that's the primary channel is there's a tremendous amount of uncertainty, 0:07:54.240 --> 0:07:55.880 and it's like when do you catch a falling knife? 0:07:55.920 --> 0:07:58.480 And you know, my kind of reading of the tea leaves, 0:07:58.560 --> 0:08:00.600 of the people that I speak with and the the 0:08:00.640 --> 0:08:02.560 interactions we have is no one wants to catch that 0:08:02.840 --> 0:08:05.760 falling knife just yet. Mark, Right now, we have been 0:08:05.800 --> 0:08:08.960 talking about how Turkey is an idiosyncratic story. However, there 0:08:09.120 --> 0:08:13.160 is a larger pressure that is similar to other developing markets, 0:08:13.160 --> 0:08:15.840 particularly as a dollar does strengthen as the FED is 0:08:15.880 --> 0:08:18.679 expected to raise rates. At what point do you start 0:08:18.720 --> 0:08:21.480 to see not necessarily to the same extent, but similar 0:08:21.600 --> 0:08:26.640 kinds of pressures and other developing market currencies. Yeah, that's 0:08:26.640 --> 0:08:28.400 a great question, and that's something that our E M 0:08:28.440 --> 0:08:30.760 T and went through on our Global effects Outlook are 0:08:30.760 --> 0:08:32.800 their global outlook as well, which is kind of like 0:08:32.840 --> 0:08:35.240 what you're doing is you're looking at funding pressures. You're 0:08:35.240 --> 0:08:38.200 thinking about backing up of of higher interest rates on 0:08:38.240 --> 0:08:40.920 the US and what impact does that have on capital flow? 0:08:41.000 --> 0:08:44.559 So essentially your primary focus is through Latin America. Um, 0:08:44.600 --> 0:08:47.040 you we have countries and again Turkeys another one. You've 0:08:47.080 --> 0:08:50.079 got a large current account deficit, someone needs to fund it. 0:08:50.160 --> 0:08:51.840 If you're not selling stuff to the rest of the 0:08:51.840 --> 0:08:54.240 world the way that parts of Asia do and running 0:08:54.240 --> 0:08:57.760 a trade surplus, well you now need international investors to 0:08:58.120 --> 0:09:01.199 participate in your fixed income or your equity market. So 0:09:01.320 --> 0:09:03.880 when you think about that in a world of rising rates, 0:09:03.920 --> 0:09:06.400 the you know, the biggest concern really kind of runs 0:09:06.400 --> 0:09:09.640 through Latin America, where you have large current account deficits 0:09:09.640 --> 0:09:12.959 and you're not offered the right carry cushion where you're 0:09:12.960 --> 0:09:15.960 not you're not offered the right environment in terms of 0:09:16.000 --> 0:09:19.640 growth and COVID reopening to feel comfortable buying those currencies 0:09:19.679 --> 0:09:22.199 just yet. And I think that's you know, participant are 0:09:22.240 --> 0:09:24.400 Our e M team is really focused on how Mexico 0:09:24.480 --> 0:09:26.760 looks vulnerable next year and where if you kind of 0:09:26.800 --> 0:09:30.079 look at that, Brazil could actually be an opportunity because 0:09:30.080 --> 0:09:33.160 there's so much rates coming through in terms of the 0:09:33.160 --> 0:09:35.480 Central Bank hiking that you're gonna get real rates higher 0:09:35.480 --> 0:09:38.600 in Brazil, which actually gives you that political uncertainty cushion 0:09:38.960 --> 0:09:41.439 that will probably pull some investors into Brazil next year. 0:09:41.559 --> 0:09:45.160 Evaluations in the f X channel already taken into account 0:09:45.240 --> 0:09:47.920 two or three rate hikes next year as the markets 0:09:47.960 --> 0:09:53.200 pricing in, right, I think that's a big, big driver 0:09:53.320 --> 0:09:56.360 if you think about what argues are for two. As 0:09:56.360 --> 0:09:58.680 an institution, we are actually very dubbish on the FED. 0:09:58.760 --> 0:10:01.400 We don't expect there the FED to move until three. 0:10:01.679 --> 0:10:04.280 We are looking for US two is intense steepener, which 0:10:04.320 --> 0:10:07.400 is generally kind of correlated with reflation. We're looking for 0:10:07.520 --> 0:10:09.720 firmer equity prices, and I guess, uh, you know a 0:10:09.720 --> 0:10:12.840 correlation offset that comes into this is really it could 0:10:12.880 --> 0:10:14.760 be firm or risk appetite, you know, not at the 0:10:14.840 --> 0:10:17.439 levels we saw one. So when I think, when you 0:10:17.480 --> 0:10:20.319 know what's priced in, what we have our real rates 0:10:20.320 --> 0:10:23.880 that are still gonna be really subdued, still potentially negative. 0:10:24.000 --> 0:10:26.720 We have the market who would have to reprice the 0:10:26.760 --> 0:10:29.080 fifty basis points worth of tightening that's priced in on 0:10:29.120 --> 0:10:31.520 the FED for next year, priced that out um and 0:10:31.559 --> 0:10:34.199 then also you're kind of reversing some of the expectations 0:10:34.200 --> 0:10:36.520 around US growth. We are looking for US growth next 0:10:36.559 --> 0:10:39.720 year to fall around to sit around three percent, which 0:10:39.720 --> 0:10:42.960 is again way below market expectations. So for me, Um, 0:10:43.000 --> 0:10:45.280 I think we're in a world again where we're trying 0:10:45.320 --> 0:10:48.720 to extrapolate the strength of the dollar in the hawk 0:10:48.800 --> 0:10:51.160 is fed into what is another you know, kind of 0:10:52.040 --> 0:10:54.760 annual outlook period. Uh. The outlook period now, I think 0:10:54.800 --> 0:10:57.360 for the first time is actually bullish the dollar. So 0:10:57.520 --> 0:11:01.000 our higher convictions is basically saying the world is going 0:11:01.040 --> 0:11:02.840 to be less correlated than when it was, and there's 0:11:02.880 --> 0:11:05.720 a lot of divergence on terms of trade, on central banks, 0:11:05.760 --> 0:11:08.600 on growth, and valuations. But this is not a clear 0:11:08.679 --> 0:11:10.199 runway to just think that the dollar is going to 0:11:10.320 --> 0:11:13.440 rally um as quickly, I think as everyone's assuming at 0:11:13.440 --> 0:11:19.040 this point so far. Mark And of course, uh, you're 0:11:19.040 --> 0:11:21.760 looking at euro dollar that is around one twelve dollar 0:11:21.880 --> 0:11:24.079 yen one fift team got a taste of that earlier. 0:11:24.160 --> 0:11:27.120 Is that so much yen or you're a weakness or 0:11:27.160 --> 0:11:31.280 is that primarily just a dollar strength story. Yeah, that's 0:11:31.320 --> 0:11:33.520 a good point too, because I think what people need 0:11:33.559 --> 0:11:36.320 to recognize is that the correlations around euro, especially to 0:11:36.360 --> 0:11:39.199 emerging markets, is broken down. If you look at euro 0:11:39.280 --> 0:11:43.240 dollar versus dollar China, we've basically seen these two currencies 0:11:43.240 --> 0:11:46.480 completely deviated levels that we've never seen before. So if dollar. 0:11:46.559 --> 0:11:49.040 China is right, we should be at one, and if 0:11:49.040 --> 0:11:51.280 euros right, we should be at you know, six eighty. 0:11:51.559 --> 0:11:53.600 So I think there's an element here that euro dollar 0:11:53.679 --> 0:11:56.000 is doing its own thing. Um, the biggest driver there 0:11:56.080 --> 0:11:58.600 is actually nominal rate spreads. It's not really a real 0:11:58.720 --> 0:12:00.880 rate story. If you look at the ada's the not 0:12:01.040 --> 0:12:03.840 the two year nominals are about three times more important 0:12:03.840 --> 0:12:06.120 than than the real rates. So I think the euro 0:12:06.200 --> 0:12:10.520 dollar is primarily a focus on the fed ECB right now. Um, 0:12:10.520 --> 0:12:12.960 I think people are worried about how COVID reopenings are 0:12:13.000 --> 0:12:15.400 impacting Germany and the Netherlands and some of these really 0:12:15.440 --> 0:12:18.600 big important countries. Because the Eurozone growth story is actually 0:12:18.600 --> 0:12:21.959 pretty solid relative to the US. So you need the valuation, 0:12:22.080 --> 0:12:24.640 you need the growth story. You also need equity inflows 0:12:24.840 --> 0:12:26.920 and all those things are influx. So I think there's 0:12:26.920 --> 0:12:30.600 an element here that dollar en is about higher rates globally, 0:12:31.040 --> 0:12:34.520 stagflation reflation, higher interest rates. We know that's coming, but 0:12:34.600 --> 0:12:36.920 euro dollar is a little bit trickier. Where I do 0:12:37.000 --> 0:12:39.680 think if the world starts to heal itself and we 0:12:39.720 --> 0:12:42.400 start to think about Eurozone growth, if we start to 0:12:42.440 --> 0:12:44.679 think about where the relative discounts are at and we 0:12:44.720 --> 0:12:47.680 start to think about, uh, the importance of equity flows. 0:12:47.760 --> 0:12:49.760 There could be a cushion that comes in there early 0:12:49.880 --> 0:12:52.920 next year. Mark McCormick, thank you so much, and really 0:12:52.920 --> 0:12:55.839 one of the great outlier calls a different view to 0:12:55.960 --> 0:13:05.160 two thousand two and two thousand It is time to 0:13:05.240 --> 0:13:08.880 stop in the political verbiage and actually get perspective. You 0:13:08.920 --> 0:13:11.480 can always in every case do that with Wendy Schiller. 0:13:11.880 --> 0:13:15.400 To say she's at Brown University barely describes her contribution 0:13:15.800 --> 0:13:18.679 to the discourse of American politics. Wendy, I want to 0:13:18.720 --> 0:13:21.480 go to David Morales, the youngest graduate in the history 0:13:21.480 --> 0:13:26.760 of Brown University's acclaimed Public Affairs Master's program. David Morales's 0:13:26.880 --> 0:13:30.719 mother picked vegetables out in California and he ended up 0:13:30.720 --> 0:13:34.679 with a prestigious degree. At your shop. He's a representative, 0:13:34.720 --> 0:13:39.160 a socialist representative from the seventh District of Rhode Island 0:13:39.280 --> 0:13:44.720 as well. He speaks Senator Warren speak, he speaks Senator 0:13:44.800 --> 0:13:48.640 Sanders speaks. What happens to the future of liberals in 0:13:48.640 --> 0:13:51.920 America in the next five or ten years in the 0:13:51.960 --> 0:13:56.440 Democratic Party. Well, I think there's an I wouldn't call 0:13:56.440 --> 0:13:58.440 it a lot war. But I think that there is 0:13:58.480 --> 0:14:02.480 a reckoning coming with the party because the party needs 0:14:02.559 --> 0:14:05.640 higher turnout among people who we used to say we're young, 0:14:05.679 --> 0:14:09.840 you know, eighteen eighty nine, but that generation is now 0:14:09.880 --> 0:14:12.480 thirty five years old, right, This is not just sort 0:14:12.520 --> 0:14:15.960 of young people, and they need that for people to vote, 0:14:16.280 --> 0:14:19.800 and that for people is highly dissatisfied with the establishment leadership, 0:14:20.040 --> 0:14:22.680 and they believe that government should do more to take 0:14:22.720 --> 0:14:26.240 care of basic human needs. That's what they believe, and 0:14:26.280 --> 0:14:29.200 that's why there's been this long drawn out fight over 0:14:29.240 --> 0:14:31.760 this what we call Reconciliation Package or whatever you wanna 0:14:31.800 --> 0:14:34.520 call it, build back Better. Um, you know that the 0:14:34.560 --> 0:14:39.160 government should provide more help to live a decent basic life. 0:14:39.600 --> 0:14:41.720 And you try to say how do you pay for that? 0:14:41.760 --> 0:14:43.360 And they don't really want to hear it. What is 0:14:43.360 --> 0:14:46.840 the percentage that is liberal in America? Do you have 0:14:46.880 --> 0:14:50.160 a working number in your head? You know, it's an 0:14:50.200 --> 0:14:55.240 interesting thing. People polling really asks about party affiliation much more. 0:14:55.640 --> 0:14:58.440 You know, do you consider yourself a liberal or conservative? 0:14:58.480 --> 0:15:00.920 And then which party do you belong to? That's the 0:15:00.920 --> 0:15:03.720 way they were the question. Uh, And I think that 0:15:03.880 --> 0:15:06.320 most people want to say they're moderate and you know, 0:15:06.440 --> 0:15:08.360 so then they say, well, I'm an independent, or I'm 0:15:08.400 --> 0:15:11.760 a Democrat or Republican, and so I think that, you know, 0:15:11.920 --> 0:15:16.960 pure liberalism. I think it's generational. What was a liberal 0:15:17.000 --> 0:15:18.680 in the sixties or seventies or eighties is not a 0:15:18.720 --> 0:15:23.080 liberal today. And that's the big disconnect. And the same 0:15:23.080 --> 0:15:24.680 thing happened, by the way, I hate to bring up 0:15:24.720 --> 0:15:27.280 that decade. The nineteen seventies, there was a big schism 0:15:27.320 --> 0:15:30.240 in the Democratic Party in Congress between people who were 0:15:30.280 --> 0:15:33.880 Democrats and people who were Liberal Democrats, and ultimately the 0:15:33.920 --> 0:15:37.200 liberal Democrats ended up winning up thirty years later, they 0:15:37.240 --> 0:15:40.400 lost the control of the Congress, though, Wendy. Nineteen seventies 0:15:40.440 --> 0:15:42.920 also a time of inflation, which is the first time 0:15:43.000 --> 0:15:46.440 now that we're seeing our surgeons and the political implications 0:15:46.600 --> 0:15:50.680 of higher price increases, a higher rate of price inflation. 0:15:50.800 --> 0:15:53.880 What's your expectation for how this plays out in terms 0:15:53.920 --> 0:15:57.760 of that schism, in terms of the mid terms. Well, 0:15:57.800 --> 0:16:00.320 I think the issue is combined with supply chain problems, 0:16:00.440 --> 0:16:03.680 right because people are willing to pay more now for things, 0:16:03.760 --> 0:16:05.520 but they go to the grocery store literally or the 0:16:05.560 --> 0:16:08.080 drug store, pharmacy wherever you're gonna go and it's you know, 0:16:08.160 --> 0:16:11.440 it's not there. You know you're seeing literally empty shelves, 0:16:11.480 --> 0:16:13.280 and that I think scare is a lot of people 0:16:13.280 --> 0:16:15.880 con You think, people of an older generation that thinks 0:16:15.920 --> 0:16:18.680 about regimes that never you know, supplied their people with 0:16:18.800 --> 0:16:22.240 enough goods. Even online, the wait time for things online 0:16:22.320 --> 0:16:24.560 is longer, it costs more. Soon, I'm still charge you 0:16:24.560 --> 0:16:26.760 for shipping now for things because they're just not available. 0:16:27.040 --> 0:16:30.400 These two things in tandem, I think scare people, and 0:16:30.440 --> 0:16:32.280 I think they see it as a sign of decline. 0:16:32.680 --> 0:16:34.960 And I think they'll blame the incumbent administration for that 0:16:35.000 --> 0:16:37.480 suppint well, and the administration is trying to take action 0:16:37.520 --> 0:16:40.480 as a result. Wendy announcing this fifty million barrel release 0:16:40.560 --> 0:16:44.960 of the Strategic Petroleum Reserve. Why would President Biden choose 0:16:45.040 --> 0:16:49.240 that option instead of encouraging US producers to pump more oil. 0:16:50.520 --> 0:16:52.800 It's an interesting choice. Other presidents have made it Kelly 0:16:52.840 --> 0:16:56.480 in the past. I think it's a it's a diplomatic choice, right, 0:16:56.520 --> 0:16:58.480 You're aligning with countries all over the world, so you 0:16:58.520 --> 0:17:00.320 have a little bit more cover. You're not just doing it. 0:17:00.520 --> 0:17:02.640 The US is not just doing it alone. But I 0:17:02.640 --> 0:17:04.199 think a lot of people on the street. If you 0:17:04.240 --> 0:17:06.280 talk to them at the guests pump, literally, they'll tell 0:17:06.320 --> 0:17:08.840 you they have no idea why guess costs what it does. 0:17:09.040 --> 0:17:11.440 They don't understand the supplied chain, they don't understand the 0:17:11.480 --> 0:17:14.280 reserve issue. They don't understand it. They just know they're 0:17:14.280 --> 0:17:17.800 paying ten fifteen fifty cents more gallon and they blame 0:17:17.880 --> 0:17:22.360 oil companies, gas companies, and they blame incumbent politicians. Well, 0:17:22.359 --> 0:17:25.080 and we've seen President Biden's approval rating taking a hit 0:17:25.119 --> 0:17:27.520 as a result of that particular issue of maybe the 0:17:27.520 --> 0:17:29.680 fact that it's taken so long to get any kind 0:17:29.680 --> 0:17:33.480 of economic agenda through Congress. Once billed back better in 0:17:33.600 --> 0:17:36.359 theory passes in the Senate as well, maybe that actually 0:17:36.359 --> 0:17:39.320 finally becomes legislation. The infrastructure bill has passed. He's taken 0:17:39.359 --> 0:17:43.040 this action on the spr Do you see his odds 0:17:43.200 --> 0:17:46.680 of getting approval higher as actually material higher or is 0:17:46.680 --> 0:17:49.359 he going to be stuck down here? I think his 0:17:49.359 --> 0:17:52.560 his approp ratings are also intertwined with the longevity of COVID, 0:17:52.680 --> 0:17:55.720 and I think people are really frustrated. Obviously, mass mandates, 0:17:55.800 --> 0:17:59.119 vaccine mandates, the facts of the vaccine does prevent serious 0:17:59.119 --> 0:18:01.879 illness in hospitals. They and most people, but not everybody. 0:18:02.119 --> 0:18:04.480 And I think people are just generally losing faith. And 0:18:04.480 --> 0:18:07.000 the problem is it's hard. That's that's snowball, right, So 0:18:07.040 --> 0:18:09.120 it's very hard to get that back, which is why 0:18:09.119 --> 0:18:11.520 the Democrats have to pay us something, even if it's 0:18:11.520 --> 0:18:14.000 a completely stripped down bill. They have to show they 0:18:14.000 --> 0:18:16.520 can still govern because if they can't, then they're gonna 0:18:16.560 --> 0:18:19.560 lose suburban voters, which we saw already in New Jersey 0:18:19.680 --> 0:18:22.720 and Virginia. And if they lose them now, it's very 0:18:22.720 --> 0:18:25.000 hard to win them back, even if things get better. 0:18:25.720 --> 0:18:27.960 Uh and when you thank you so much, Professor Schiller 0:18:28.040 --> 0:18:30.359 at Brown University, is just too short a visit today. 0:18:30.400 --> 0:18:37.919 We have to do this again as soon as it 0:18:38.040 --> 0:18:40.440 is a joy to get out front of the onslaught 0:18:40.480 --> 0:18:45.080 of economic data tomorrow with Michael Faroli, chief US economist 0:18:45.160 --> 0:18:49.600 at JP Morgan. Michael, I'm absolutely fascinated by the numbers 0:18:49.640 --> 0:18:54.360 that we have, how disjoint they are in our political debate. 0:18:54.720 --> 0:18:58.240 Let's start with the Atlanta GDP number, which is screaming 0:18:58.320 --> 0:19:02.480 eight percent. Or let take real g d P plus inflation, 0:19:03.000 --> 0:19:06.600 which is a nominal GDP that would make China happy. 0:19:06.720 --> 0:19:09.720 Or let's look at real GDP run rate of two 0:19:09.520 --> 0:19:13.600 two down near the famed Feroi potential g d P. 0:19:14.359 --> 0:19:17.680 How much of this nation is flat on their back 0:19:17.920 --> 0:19:22.960 in a week economy? Well, not much. I don't think 0:19:23.200 --> 0:19:25.879 the unemployment rate is you know, one of the statistics 0:19:25.880 --> 0:19:28.720 you didn't mention is the unemployment rate is now four 0:19:28.760 --> 0:19:32.600 point six p uh and that seems to be moving 0:19:32.640 --> 0:19:35.480 only lower. So the labor market, which is probably the 0:19:35.480 --> 0:19:39.360 most important market there is, looks pretty healthy. Inflation has 0:19:39.359 --> 0:19:41.800 been a problem the last two quarters, uh, and it 0:19:41.840 --> 0:19:44.520 will continue to be a problem, uh in in the 0:19:44.560 --> 0:19:48.080 fourth quarter. I don't expect that to persist in quite 0:19:48.119 --> 0:19:51.199 the same degree next year. I don't think many people do. 0:19:51.320 --> 0:19:54.359 Of course, uh So there is there are problems, but 0:19:54.440 --> 0:19:57.400 I think it would be quite extreme to say that, um, 0:19:57.680 --> 0:19:59.640 the economy is flat on his back. I mean, real 0:19:59.680 --> 0:20:02.040 gd is at peak levels and we're basically back to 0:20:02.040 --> 0:20:04.919 the trend we were on before the pandemic, which was 0:20:05.400 --> 0:20:07.920 pretty good trend. Michael. A lot of politicians are saying 0:20:08.000 --> 0:20:09.520 it is flat in the back, and the course they're 0:20:09.560 --> 0:20:13.280 centered on inflation. Right now, we all understand that debate, 0:20:13.400 --> 0:20:16.440 but so much of that is the demand for wage growth, 0:20:16.880 --> 0:20:20.439 and then inflation adjusted wage growth. Can JP Morgan model 0:20:20.760 --> 0:20:24.240 that we will see an actual real wage growth somewhere 0:20:24.320 --> 0:20:27.960 in the distance. So yeah, I think real wages will 0:20:27.960 --> 0:20:31.439 be growing next year um in part because again if 0:20:31.440 --> 0:20:34.359 headline inflation comes off, we know that nominal wage growth 0:20:34.480 --> 0:20:36.200 looks like it's on a pretty good trend right now. 0:20:36.240 --> 0:20:38.399 So all you need is some moderation and things like 0:20:38.400 --> 0:20:41.520 food and energy prices, particularly energy prices to start to 0:20:41.520 --> 0:20:43.919 see real wages pick up. And actually, you know, one 0:20:43.920 --> 0:20:46.240 of the things interesting things here that I think it's 0:20:46.280 --> 0:20:49.280 a little noted is that the labor share of national 0:20:49.320 --> 0:20:52.480 income actually continues to be on an up trend recently 0:20:52.560 --> 0:20:55.679 through the pandemic. So so I do think it's a 0:20:55.680 --> 0:20:58.800 good period for for workers. Certainly, vacancies are at an 0:20:58.800 --> 0:21:02.600 all time high, and workers are getting uh the wage 0:21:02.680 --> 0:21:06.080 races that you would think would would occurrent in a 0:21:06.200 --> 0:21:08.400 labor market like this. And this is perhaps, Michael, why 0:21:08.440 --> 0:21:11.119