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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jailey. We bring you

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Speaker 1: insight from the best and economics, finance, investment and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com

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Speaker 1: and of course on the Bloomberg terminal. Right now, as

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Speaker 1: we continue our coverage in Scotland of leaders greeting including

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Speaker 1: Prince Charles among the attendees here and he has been

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Speaker 1: committed to this for Ages is someone as well committed.

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Speaker 1: She is from Eastern Europe where climate change is incredibly

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Speaker 1: important for those of you on Bloomberg Radio. Right now, Uh,

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Speaker 1: Prince Charles speaking to those gathered in Glasgow, Uh, Scotland.

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Speaker 1: All sorts of symbolism there, but right now our friends

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Speaker 1: in Lake with the Managing Director of the International Monetary Fund.

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Speaker 1: Thank you so much, Tommy, as we are absolutely delighted

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Speaker 1: to be joined by Christian and your Gav of the IMF.

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Speaker 1: Thank you for joining us. I know the i m

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Speaker 1: F has been instrumental and helping with climate finance and

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Speaker 1: also giving aids in the public tirade pritnerships to make

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Speaker 1: sure that we deal with sustainability. Are you confident that

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Speaker 1: couple twenty six is not just a talk shop, but

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Speaker 1: that will achieve meaningful changes. I see three reasons to

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Speaker 1: be confident. One, Finally, net zero by mid century is

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Speaker 1: embraced by a vast majority of countries and thirty five

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Speaker 1: and counting. Two because this time more of the speeches

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Speaker 1: start about what we can do, not what about you

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Speaker 1: should do, and that taking responsibility matters. And three keep

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Speaker 1: your eyes on tomorrow Finance Day. Just to give you

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Speaker 1: the number. We are proud that climate finance last year

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Speaker 1: jumped by, but jumping by it is only a hundred

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Speaker 1: and thirty billion dollars out of forty nine trillion. This

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Speaker 1: is one quarter of one percent. Tomorrow, I expect to

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Speaker 1: see many of these Trillian's grabbing this opportunity to move

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Speaker 1: to net zero as a chance to be profitable and

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Speaker 1: a Greek. But at the same time, the U s

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Speaker 1: I know the initiatives with methane and but actually the

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Speaker 1: president is not coming with new solutions. China is not here.

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Speaker 1: We don't have any new solutions from China. And Brazil

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Speaker 1: is you know, doing a U turn. But actually go

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Speaker 1: back to what it was like three or four years ago.

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Speaker 1: Can we really achieve it without more from these countries.

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Speaker 1: We need everybody on board. We need all hands on deck,

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Speaker 1: and we have to continue to pressure countries to come around.

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Speaker 1: And actually, when we talk about what is worrisome to me,

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Speaker 1: the most worrisome is this decade. If you look at

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Speaker 1: where we are on the emission reduction by twenty thirty,

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Speaker 1: at the pledges we have today, nowhere close. We we

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Speaker 1: are maybe one third to two thirds close to the

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Speaker 1: pledges that we need to get our chance to keep

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Speaker 1: temperature at below to degree and even better one point five.

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Speaker 1: So more attention to this decade is what is necessary

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Speaker 1: in addition to bringing this less willing parties on board.

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Speaker 1: What do you worry about in the world economy? So

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Speaker 1: there's inflation, it's coming, We're not sure whether it's temporary

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Speaker 1: or not, other supply chain issues. If we don't have

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Speaker 1: a smooth economy, this will turn back. Actually it's back

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Speaker 1: on climate change. Of course, if if the economy starts

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Speaker 1: rolling back, this would be um tempering cappetite for climate

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Speaker 1: investments among any other investments. So let look at the economy.

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Speaker 1: What is the problem. It is still that part of

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Speaker 1: the world is emerging from the pandemic very strongly and

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Speaker 1: another part is falling behind. This divergence causes interruptions in

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Speaker 1: supply chains. We expect, unfortunately, these interruptions to continue into

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Speaker 1: Meet twenty two, maybe even further, and they are putting

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Speaker 1: pressures on prices. Uh. We are hopeful that this price

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Speaker 1: pressures are going to be temporary. We also know that

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Speaker 1: central banks have the tools to deal with them. But

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Speaker 1: what if they're not transitory? It is inflationary pressures. If

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Speaker 1: if these pressures are there, central banks are going to

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Speaker 1: take action inevitably. We have seen already Canada doing some

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Speaker 1: of it. In emerging markets where inflation is real and

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Speaker 1: it is more systemic, rates are going up in many places.

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Speaker 1: The problem is that if you take interest rates up,

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Speaker 1: the solution for some would be a problem for others,

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Speaker 1: especially for emerging markets with high levels of door denominated

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Speaker 1: that for the corporates that are on the big mountain

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Speaker 1: of that. So preferably we should see tampering inflation, and

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Speaker 1: how can we do that well, focus on reducing these divergence.

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Speaker 1: Vaccinate the world. Vaccinate the world so we can see

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Speaker 1: production everywhere stepping up we're slow to that. Is it

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Speaker 1: going to be stepped up significantly or otherwise? If we're

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Speaker 1: creating this two speed you know this two speed world,

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Speaker 1: but also within economy is two speed economy? And what

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Speaker 1: does that mean for actually in the future in terms

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Speaker 1: of populism, in terms of the policy place, it is

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Speaker 1: going to be very problematic on many accounts. Uh. For

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Speaker 1: for decades the world was converging. Poorer countries were getting

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Speaker 1: great a poor people were getting wealthier. When that breaks

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Speaker 1: and right now it has it has broken down, of course,

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Speaker 1: we risk more tension and affecting the social fabric in

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Speaker 1: many many places. Remember what did we have protests in Chile,

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Speaker 1: in Paris all over the world. If the divergent continues,

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Speaker 1: we are going to see more more unrest. How can

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Speaker 1: we overcome it? Well, vaccinate of all people in all

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Speaker 1: countries at least by the end of this year, by

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Speaker 1: meet next year. Do we have the vaccines for that, Yes,

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Speaker 1: we do, but we are not distributing them yet in

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Speaker 1: a way that would make that difference. To change the

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Speaker 1: taxing system to make sure again, I mean, this is

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Speaker 1: also the problem climate change, is that you can have

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Speaker 1: the best will in the world, but money needs to

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Speaker 1: transfer from the richer countries to the less rich ones.

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Speaker 1: We do have to look at taxation that helps us

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Speaker 1: to reduce inequalities. We think countries and across countries we

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Speaker 1: can do it without this turning into a major burden,

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Speaker 1: because even incremental change in more progressivity in taxation can

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Speaker 1: feel more money in the right place. We also can

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Speaker 1: improve the quality of spending. Of course, make good use

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Speaker 1: of the money you have in your hands. And the

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Speaker 1: the I M efforts that there wasn't conclusive evidence in wrongdoing.

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Speaker 1: Actually with some of the allegations against you, is there

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Speaker 1: concern that actually the staff have turned against you? Do

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Speaker 1: you worry about your credibility of the staff? Let me

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Speaker 1: first say that I'm very grateful to the membership. They

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Speaker 1: gave me a chance to present my side of the story,

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Speaker 1: and they on that basis voted full confidence. And then

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Speaker 1: we had great annual meetings with fantastic support for the

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Speaker 1: agenda of the I mean, of course, stuff was and

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Speaker 1: continues to be concerned. That is not a minor issue.

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Speaker 1: Whether we have full inten gritty of the work we do.

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Speaker 1: Fortunately in the front. Yes, we have high respect for

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Speaker 1: the quality of our reports. I have engaged with the stuff.

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Speaker 1: We had two terms home meetings. I have answered many

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Speaker 1: questions people have on their mind, and of course I

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Speaker 1: would continue to do so. Have any members said that

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Speaker 1: they're concerned about what's happened of the membership at the

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Speaker 1: at the membership. In the end, the vote was very

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Speaker 1: clear one of support for me to continue to do

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Speaker 1: the important job we have in front of us, including

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Speaker 1: for the IMF to play a critical role on climate

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Speaker 1: because it is macro critical. It affects macroeconomic and financial stability,

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Speaker 1: and climate action is our chance to create green jobs

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Speaker 1: and green growth. Christ And and and gergib I, thank you

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Speaker 1: so much for joining us today. Of course that was

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Speaker 1: the m D of the IMF. With that, I'm going

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Speaker 1: to send it back John to you in New York

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Speaker 1: and of course we'll have plenty more from Glasgow throughout

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Speaker 1: the France. Thank you looking forward to it. An important

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Speaker 1: conversation that tom a signature issue for the IMF Managing Director.

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Speaker 1: After the IMF Managers Direct and reported the according to

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Speaker 1: report that we put out on October eight, tempered some

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Speaker 1: language around climate change for Brazil, after Jayo Barsanara, the

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Speaker 1: Brazilian President, objected to itself. That's an ongoing conversation. Still,

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Speaker 1: let's do this right now. It is COP twenty six

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Speaker 1: or Francy Laquax in Scotland with Mr Benny Off. This

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Speaker 1: is a guy out of an apartment who said the

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Speaker 1: end of software and in doing that moved on to

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Speaker 1: billions and with his wife Lynn, to making all sorts

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Speaker 1: of philanthropy. He has spoken with his money in Scotland,

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Speaker 1: Francy Laquais, he has spoken with his money. Tom, You're

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Speaker 1: absolutely right, and I am delighted to be joined by

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Speaker 1: Market Benny Off right after. You know, before this, actually

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Speaker 1: you were in a panel world Station. You've been pushing

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Speaker 1: this for such a long time, but tw need to

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Speaker 1: do more on other things. Deferstation is good, it's only

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Speaker 1: a drop in the ocean. Well, it's one of the

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Speaker 1: most important things we can do. You know, we have

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Speaker 1: lost three trillion trees on our planet. We deforested from

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Speaker 1: six trillion trees. We only have three trillion trees left.

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Speaker 1: Every trillion trees sequesters two gig at times of carbon.

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Speaker 1: We need that carbon storage. This is really important. So

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Speaker 1: to see those world leaders make those commitments, I'm shocked, Actually,

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Speaker 1: I am really shocked. Okay, their pledges, how do you

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Speaker 1: make sure that then they go out and actually count

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Speaker 1: what's been done and are held account if they don't. Well,

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Speaker 1: this is a huge moment where world leaders and also

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Speaker 1: philanthropists and CEOs all came together around reforest station. Look,

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Speaker 1: every CEO like me, we need to do three things. One,

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Speaker 1: you've got to get go net zero salesforces already in

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Speaker 1: net zero company and fully renewable. To we need to

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Speaker 1: plan a trille entrees. So that's why we started one

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Speaker 1: t dot Oregon January. But to see that amount of

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Speaker 1: progress in eighteen months that I feel very inspired and

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Speaker 1: energized today. And Three, we need to energize an eco

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Speaker 1: preneur revolution. So there's all these cool entrepreneurs here, but

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Speaker 1: they are ecology entrepreneurs, so they're creating all these next

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Speaker 1: generation innovations and that is very exciting to see these

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Speaker 1: things happening here at Talk to me about cash, So

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Speaker 1: you're what spending a hundred million over ten years? Are

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Speaker 1: you increasing that? We Well, we're doing a lot of

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Speaker 1: different things, but we did a we have a three

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Speaker 1: hundred million dollar Tree Fund which is all about accelerating

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Speaker 1: one t dot Org, which is our trill entry initiative

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Speaker 1: that we created, and it's exciting to see it now.

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Speaker 1: It is so well aligned with what's happening here. I mean,

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Speaker 1: it's beyond my expectations. Honestly. Can billionaires do more at

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Speaker 1: this point in this junction? Well, I think number Like

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Speaker 1: I said number one, everyone's got to go net zero.

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Speaker 1: You've got to go new zero. I've got to go

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Speaker 1: new zero. Our companies have to go net zero. And

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Speaker 1: until you go to new zero, I don't have a

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Speaker 1: lot of conversation with anyone because I want to make

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Speaker 1: sure that they are net zero, not in twenty thirty,

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Speaker 1: not in twenty forty, not right now. So salesforces are

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Speaker 1: in at zero. This is really important. And then two

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Speaker 1: is we need that sequestration capability. We have admitted a

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Speaker 1: hundred giga tons of carbon since the first Industrial Revolution.

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Speaker 1: Now we could sequester two hundred gigatons of carbon through

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Speaker 1: these trees. That is exciting. Does it have to come

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Speaker 1: from governments? So I know you're saying companies need to

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Speaker 1: be net zero. If you don't have the push, if

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Speaker 1: you don't have the regulation to mandate it, there's going

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Speaker 1: to be people said that Because I am so impressed

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Speaker 1: with UH President Ursula Vanderlyin and what she has done

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Speaker 1: with the EU Green Deal and that she is basically

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Speaker 1: charging companies who are not net zero for their carbon.

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Speaker 1: So companies CEOs like, that's what I'm CEO. I have

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Speaker 1: to make sure that if I'm going to go trade

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Speaker 1: in Europe that I'm net zero Now I already am,

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Speaker 1: but think about all the companies that aren't. You. Those

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Speaker 1: CEOs are all thinking about how do I get to

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Speaker 1: net zero right now? And that's exciting. So she, I mean,

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Speaker 1: she's leading the world. I mean, Ursula is amazing and

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Speaker 1: to see her do that, I think she will transform

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Speaker 1: how CEOs are thinking about carbon today. Mark, I think

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Speaker 1: part of your deal on Slack also had a green

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Speaker 1: component right on bonds. Do you see that actually being

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Speaker 1: more in your acquisitions going forward? I really you know, well, Eero,

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Speaker 1: how to present right to see financing instruments that are

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Speaker 1: like green bonds, and you know the idea that everybody

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Speaker 1: needs to do everything they can to get to net zero,

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Speaker 1: so we can do a green bond or were we're

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Speaker 1: regarded as a sustainable company because for years and years

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Speaker 1: we've been working to get to this point where we

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Speaker 1: can say, hey, we are fully net zero and renewable

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Speaker 1: as well. So but we're still cutting a mission still,

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Speaker 1: and all of our suppliers now they have to contractually

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Speaker 1: commit that they're going to net zero. There's a lot

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Speaker 1: of hard work for everyone. We're also building a sustainability cloud,

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Speaker 1: We're doing a lot of things, building an entire ecosystem

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Speaker 1: to help our customers get to nit zero as well.

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Speaker 1: Everyone is going to need a lot of hope. So

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Speaker 1: how important is it that in M and A transactions?

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Speaker 1: Actually there's always a green financing component. I think it's important,

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Speaker 1: but it's not as important as that number one. That is,

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Speaker 1: until your net zero, nothing's going to happen. And a

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Speaker 1: company can come in and say, hey, I want to

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Speaker 1: do a green bond, but hey, show us your carbon footprints. Okay,

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Speaker 1: in twenty seconds, what'd you tell to you know, fellow

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Speaker 1: billionaires and chief executives watching, what do you want them

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Speaker 1: to do? November two, only one planet treat Hey, if

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Speaker 1: everybody planted a tree, that would be amazing if they

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Speaker 1: just realized that how important the tree can be in

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Speaker 1: creating a better planet. But no Number one is to

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Speaker 1: go net zero. That's a number two is Planet Tree

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Speaker 1: and number three is let's get an equal Preneura revolution.

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Speaker 1: You know, I'm from Silicon Valley, you know that and this.

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Speaker 1: You know there's a lot of exciting companies, many of

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Speaker 1: them here now, who are building solutions, and I think

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Speaker 1: they're going to really help us to accelerate this, uh

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Speaker 1: this world, Mark, thank you so much. As always energizing

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Speaker 1: from salesforce. It's a demand side shock. Demand is booming,

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Speaker 1: yet demand is good. Well that supply side story in

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Speaker 1: the high cost with it, Tom, will it way on

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Speaker 1: demand through next year? I think that's what we continue

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Speaker 1: to talk about definitely, Mark, though it's running on demands

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Speaker 1: by it. John, you gotta take physics to get this done. Okay,

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Speaker 1: so we get to someone who's done that. Let's do

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Speaker 1: that now without a hand equity strategist at WOWS Fargo Securities,

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Speaker 1: physics at Yales at Yale, Anna, is that right? Physics

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Speaker 1: and mathematics there we go. Put us all to shame,

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Speaker 1: and let's talk about twenty five year end on SMP

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Speaker 1: five hundred five and then something close to the forty

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Speaker 1: seven next year. Just framed the view at Wells with you, buddy,

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Speaker 1: Chris Samby for us, well, I think for this year,

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Speaker 1: and what's really given us confidence into our price target

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Speaker 1: for the next two months. Look at how three Q

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Speaker 1: earnings have been coming in. As much as all we

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Speaker 1: hear about is supply chain issues, labor costs going up,

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Speaker 1: labor shortages, really what we're seeing is that margins have

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Speaker 1: been growing overall for the SMP five hundred companies. That's

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Speaker 1: telling us that this earnings growth has been robust, and

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Speaker 1: it's partly because like you guys were talking about before,

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Speaker 1: that demand has been rather in elastic. Demand has been

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Speaker 1: booming and it's helping us in our prospects going into

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Speaker 1: year end. But like you said, now for it next year,

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Speaker 1: we're gonna see tapering start to finish probably around mid year.

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Speaker 1: Then you're starting to see rumors about that rate HiPE

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Speaker 1: being priced in. And that's the kind of environment where

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Speaker 1: we're shifting from this more mid cycle too late cycle

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Speaker 1: X calls down thousand, you know who knows, and maybe

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Speaker 1: we'll overshoot the SPX five thousand, which would be remarkable.

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Speaker 1: On the way up. Adults are gonna come to you

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Speaker 1: and say we must hedge this great bull market. And

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Speaker 1: yet with this convexity this acceleration hedges become so expensive.

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Speaker 1: Is that where we are now that you can intelligently

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Speaker 1: head hedge a great bull market well as the pace

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Speaker 1: has been accelerating. What's been interesting is you look at

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Speaker 1: the ball Tony markets and you're seeing that implies over realized.

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Speaker 1: It's actually not too expensive right now. I think a

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Speaker 1: lot of that's been brought down by the additional confidence

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Speaker 1: in earnings growth and just sort of the better outlooking

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Speaker 1: clarity we're getting. So in fact, hedges, I don't think

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Speaker 1: hedges are that expensive here. I think it's possible. You

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Speaker 1: just gotta pick your time. And this is Lisa, this

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Speaker 1: is absolutely critical, and it's an indication that is not cathartic.

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Speaker 1: You're not getting the emotion is indicated by expensive hedges

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Speaker 1: where you go, I can't take part. And part of

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Speaker 1: this is how do you bet against a market that

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Speaker 1: seems by some maybe would call a Teflon like in

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Speaker 1: its appearance in terms of rallying. Honestly, and I do

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Speaker 1: wonder how much this hinges on this idea that there

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Speaker 1: still is so much liquidity in the market based on

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Speaker 1: where the FETE is in their policy that even if

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Speaker 1: they become a little more hawkish. If they start to

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Speaker 1: taper their bond purchases, you still have negative real yields

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Speaker 1: of around negative one percent on the tenure yield in

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Speaker 1: the United States. How much is this driving everything at

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Speaker 1: this point, regardless of fundamentals, regardless of what story you

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Speaker 1: tell in the economic cycle, No, Lisa, you're absolutely calling

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Speaker 1: out that big elephant in the room. Even if we

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Speaker 1: start tapering, these purchases are massive. This is the most

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Speaker 1: monetary liquidity we've had in quite some time. And don't

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Speaker 1: forget we've had a lot of fiscal stimulus down the

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Speaker 1: pipeline as well, perhaps more coming. So in that kind

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Speaker 1: of environment, it's helping people and it's giving us that

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Speaker 1: flexibility to spend and to move markets around. I think

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Speaker 1: that as that titans. You know, tapering is just the beginning,

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Speaker 1: and even reals you are still coming off very very

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Speaker 1: low low levels and credit while it's winding off tights,

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Speaker 1: it's still historically low. So all that context, it's a

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Speaker 1: great point. I think that's a lot of the reason

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Speaker 1: why I enjoying the sort of boost we're saying now.

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Speaker 1: And it just give me a second, this could be

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Speaker 1: one of the biggest contram and indicators we've had in

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Speaker 1: quite a while. Lisa, are you sounding a little bit bullish?

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Speaker 1: Are you sure? I mean, what is bullish there? Did

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Speaker 1: it start in the bullish? Well? Thank you coming honestly,

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Speaker 1: Teflon is what the market has been doing. And I

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Speaker 1: do wonder John, to the point, how much is it

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Speaker 1: just completely backed by the Fed? Don't put against that

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Speaker 1: is still accommodated. And we started screaming we got you there,

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Speaker 1: we got you. It was just here to go on,

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Speaker 1: tak the floor is yours. I've heard this so many times, John.

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Speaker 1: It is the conflation of mac well intentioned mac crew

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Speaker 1: analysis into the bid ask of the market and particularly

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Speaker 1: of the stock market. And you've got to combine that

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Speaker 1: in with a careful Gina Martin Adams and on kind

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Speaker 1: of analysis. Just to confirm Lisa is not bullish. Based

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Speaker 1: on what Lisa just said, have we done with that now? Lisa,

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Speaker 1: bullets for embarrassed. You know, I'm trying to look around

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Speaker 1: corners that have negative things there because that'ners are that

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Speaker 1: are concerning. Thank for clarifying. At a final question, how

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Speaker 1: big is the FETs involvement in the sanquity market. It

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Speaker 1: is no. It is undeniably large, and if anything, the

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Speaker 1: FAT has made sure to communicate their stands because they

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Speaker 1: know the impact on the equity market. And you know,

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Speaker 1: to Lisa's point, there is going to be one sector

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Speaker 1: we're looking on, in in particular, the favorite tech that is

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Speaker 1: going to be having a harder time if real yields

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Speaker 1: start to take off. And I think real yields will

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Speaker 1: start to move higher away from the negative, but they

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Speaker 1: haven't and they haven't yet. That's a fact, right mm hmm. Yeah.

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Speaker 1: What's been interesting is as we are getting this consensus

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Speaker 1: on tapering, you would expect real yields to really start

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Speaker 1: picking up. They've been going a little bit the other

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Speaker 1: way lately, and that's what's giving us pause. You know,

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Speaker 1: talk about looking around the corner. That's a little point

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Speaker 1: of the market that we're wondering. Is this signaling something

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Speaker 1: different to us? But I think you need to give

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Speaker 1: it time. You know, we're looking on this day to

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Speaker 1: day framework. We need to think in months and quarters ahead.

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Speaker 1: We're all looking around corners here and a thank you

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Speaker 1: and a hand of last fact securities, We appreciate it.

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Speaker 1: Send up. As to Chris Obvious, well, Francis Donald joins

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Speaker 1: us with Manual Life, and she's written an important essay

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Speaker 1: on all this talk about policy mistake. Let's fold it

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Speaker 1: into the word transitory, a transitory policy mistake. When a

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Speaker 1: central bank screws up, Francis, what do they do well?

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Speaker 1: It depends who they are, but traditionally they have hitto

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Speaker 1: it back. And I think this is what the market

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Speaker 1: is expecting with those flattening curves, that we're going to

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Speaker 1: see central bankers who maybe get a little bit too

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Speaker 1: excited validating those front end moves, and you see those

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Speaker 1: longer end start to move down. And this to me

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Speaker 1: is really saying that the market, and I think a

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Speaker 1: lot of economists, including myself, see that in two growth

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Speaker 1: and inflation slows pretty heavily, and in that environment central

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Speaker 1: banks will just want to pivot. They'll have to pivot

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Speaker 1: back towards a more debish language. Hopefully that means a

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Speaker 1: curve receivinging the challenges. We've got to traverse some challenging

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Speaker 1: curve flatteners, some challenging types of economic environment before we

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Speaker 1: see the whites in their eyes. So the twenty year

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Speaker 1: yield is now higher than the thirty year yield. It's

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Speaker 1: an inverted yield in the twenties thirties spread. I don't

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Speaker 1: believe I've ever mentioned that on air before. Lisa mentions

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Speaker 1: that daily folks with another another world. For instance, the

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Speaker 1: FED can control how far out the curve, and if

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Speaker 1: they can we control so far out, why do they

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Speaker 1: care what the farther out curve does well. The twenty

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Speaker 1: thirties to me, is less of an economic single and

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Speaker 1: more of a technical development that's happening there. But what

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Speaker 1: you should be watching is that two year versus the

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Speaker 1: thirty year. No, the FED cannot control that thirty year yield,

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Speaker 1: but that thirty year yield still has a lot of

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Speaker 1: information about where we're going. Long term growth potential is

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Speaker 1: embedded in the long end of that curve, and the

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Speaker 1: story we're seeing now in that long end is that no,

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Speaker 1: despite what we believe would be game changing thistle stimulus,

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Speaker 1: we haven't checked that box, particularly in the last few weeks.

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Speaker 1: Remember average inflation targeting that was supposed to be a

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Speaker 1: big deal. Tom We were supposed to be in a

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Speaker 1: regime change where the Fed let things run hot, or

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Speaker 1: the idea that COVID was going to produce massive productivity games. Well,

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Speaker 1: turns out we haven't said a major labor shortage, which

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Speaker 1: is not giving us a productivity game. In fact, the opposite.

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Speaker 1: So what that long end is telling us is that

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Speaker 1: the escape velocity game change in growth that we thought

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Speaker 1: we were going to burst out of in the build

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Speaker 1: back that our post COVID regime, we aren't just not

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Speaker 1: getting that. Probably getting the opposite. Fransis you've got a

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Speaker 1: fascinating forward look here, let's sum it up. You're talking

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Speaker 1: about growth slaming next year, inflation slamming next year, and

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Speaker 1: the possibility that the FED has to flip once and

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Speaker 1: then flip again. I'm just wondering how that stacks out

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Speaker 1: with your view on risk assets equities more broadly, what's

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Speaker 1: the outlook look like. Well, when we're constructing answered allocation portfolios,

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Speaker 1: what we see is a FED that cannot hike in

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Speaker 1: two and actually a lot of global central banks that

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Speaker 1: are either going to have to pivot back to a

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Speaker 1: more doubish stand or even reverse rate hikes in the

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Speaker 1: next five years. So in that environment, yes, I'm happy

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Speaker 1: to be adding back to cyclical trade, but until we

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Speaker 1: get there, until I can add back to risk, I

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Speaker 1: have to make sure that the central bankers are not

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Speaker 1: going to commit more of a pol policy mistake going

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Speaker 1: into two. I don't think that happens to power this week.

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Speaker 1: We've still got half the f O m C who

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Speaker 1: sees the two rate hikes. The data is still okay,

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00:24:58,800 --> 00:25:01,760
Speaker 1: inflationary pressures are still hot, and dare we say, getting

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00:25:01,760 --> 00:25:04,440
Speaker 1: more and more political. This is probably not the leak,

431
00:25:04,520 --> 00:25:06,399
Speaker 1: and that's why it's a little bit shoppier as we

432
00:25:06,440 --> 00:25:09,760
Speaker 1: head into two. I think we're in that bad news

433
00:25:10,080 --> 00:25:12,240
Speaker 1: is bad NewSpace. You have to get back to bad

434
00:25:12,280 --> 00:25:14,680
Speaker 1: news is good news in order to see adding back

435
00:25:14,720 --> 00:25:18,080
Speaker 1: to risk assets that probably only happens in early two Francs.

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00:25:18,119 --> 00:25:20,720
Speaker 1: Just to highlight your position, are you saying that bond

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00:25:20,760 --> 00:25:23,959
Speaker 1: markets are wrong and that equity markets risk assets are

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00:25:24,000 --> 00:25:28,159
Speaker 1: more right when it comes to the outlook going forward, No,

439
00:25:28,320 --> 00:25:30,360
Speaker 1: I don't subscribe to a market being right or wrong.

440
00:25:30,400 --> 00:25:32,640
Speaker 1: I think markets are telling us the right story, which

441
00:25:32,680 --> 00:25:35,679
Speaker 1: is that right now central banks are too hawkish. But

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00:25:35,720 --> 00:25:37,679
Speaker 1: in the long term there's still a huge amount of

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00:25:37,680 --> 00:25:39,960
Speaker 1: liquidity in the system, and if you're looking at five

444
00:25:40,000 --> 00:25:43,000
Speaker 1: year return forecast, then being in fixed income just doesn't

445
00:25:43,000 --> 00:25:45,240
Speaker 1: make the same amount of sense as being in equities

446
00:25:45,280 --> 00:25:48,000
Speaker 1: particularly broad one. What we have to pay attention to

447
00:25:48,080 --> 00:25:50,560
Speaker 1: THO is what is the next move in the yield curve?

448
00:25:50,800 --> 00:25:53,040
Speaker 1: And in order to get a receipening, we have to

449
00:25:53,040 --> 00:25:56,439
Speaker 1: see the policy pivot. The policy pivots are impossible for

450
00:25:56,480 --> 00:25:58,359
Speaker 1: me to forecasts, not on a model that tells me

451
00:25:58,400 --> 00:26:00,679
Speaker 1: what's going on in Powell's head. A definitely don't have

452
00:26:00,680 --> 00:26:02,399
Speaker 1: a model that tells me who's going to be running

453
00:26:02,400 --> 00:26:05,280
Speaker 1: the FED in two. I mean, I'm looking at betting markets.

454
00:26:05,280 --> 00:26:07,560
Speaker 1: I wasn't raised to do economics. By looking at betting

455
00:26:07,560 --> 00:26:09,480
Speaker 1: markets tell me what's going to be doing the FED.

456
00:26:09,760 --> 00:26:12,159
Speaker 1: So there's this huge amount of uncertainty as to the

457
00:26:12,320 --> 00:26:14,720
Speaker 1: when we see a policy pivot, And of course I

458
00:26:14,800 --> 00:26:16,360
Speaker 1: might be wrong that we don't get one, in which

459
00:26:16,400 --> 00:26:19,080
Speaker 1: case we're talking about a much more difficult outlook as

460
00:26:19,119 --> 00:26:21,320
Speaker 1: that curve continues to seep in and our inbox are

461
00:26:21,359 --> 00:26:24,640
Speaker 1: full of all those Feld curves, equal recessions types of stories.

462
00:26:24,720 --> 00:26:26,919
Speaker 1: For instance, you're not alone it looking at predicted pages

463
00:26:26,920 --> 00:26:29,040
Speaker 1: to figure out whether J. Pel will remain the Chair

464
00:26:29,240 --> 00:26:32,240
Speaker 1: of the Federal Reserve come next year. I do wonder, though,

465
00:26:32,640 --> 00:26:36,080
Speaker 1: what a different FED chair possibly Layle Brown Brainard would

466
00:26:36,080 --> 00:26:39,240
Speaker 1: actually do to the potential stance of a federal reserve

467
00:26:39,480 --> 00:26:42,760
Speaker 1: when governments generally want a central bank, that is dubbish.

468
00:26:44,359 --> 00:26:46,360
Speaker 1: You know, most of the time we would say, don't

469
00:26:46,359 --> 00:26:49,919
Speaker 1: pay attention to who's running the FED, focus on the data,

470
00:26:50,280 --> 00:26:52,560
Speaker 1: except that right now the outlook for the FED is

471
00:26:52,760 --> 00:26:56,440
Speaker 1: very binary. Does the FED focus on the inflation side, which,

472
00:26:56,440 --> 00:26:58,000
Speaker 1: by the way, I don't think they're going to be

473
00:26:58,080 --> 00:27:00,720
Speaker 1: very successful at taming, even if they do get hawkish,

474
00:27:01,000 --> 00:27:03,320
Speaker 1: in which case we're talking about more curve flatteners in

475
00:27:03,400 --> 00:27:05,920
Speaker 1: a shortened cycle. Or does the FED say, you know what,

476
00:27:06,040 --> 00:27:09,199
Speaker 1: that labor force participation rate, one of the most important

477
00:27:09,280 --> 00:27:12,280
Speaker 1: data points out there right now, is still really suppressed.

478
00:27:12,400 --> 00:27:15,399
Speaker 1: Our job market is still dysfunctional in many ways. We

479
00:27:15,520 --> 00:27:18,280
Speaker 1: have to allow the overheat and reconvince the market of

480
00:27:18,359 --> 00:27:21,879
Speaker 1: average inflation targeting. Now, Lele Brainard seems better more in

481
00:27:21,960 --> 00:27:24,560
Speaker 1: that ladder camp. And so when we're in this very

482
00:27:24,560 --> 00:27:28,080
Speaker 1: stark binary type of outcome, than yes, who's running the

483
00:27:28,080 --> 00:27:31,359
Speaker 1: FED will matter more than it has historically. Is this

484
00:27:31,440 --> 00:27:35,600
Speaker 1: traditional economics? I mean, do they have a foundation to

485
00:27:35,760 --> 00:27:39,960
Speaker 1: work on right now? No? Because you know, we've talked

486
00:27:39,960 --> 00:27:42,560
Speaker 1: about this for the last almost two years. We don't

487
00:27:42,640 --> 00:27:44,919
Speaker 1: have a lot of economics that helps us deal with COVID,

488
00:27:44,920 --> 00:27:47,080
Speaker 1: and yes, COVID is still a big issue. I don't

489
00:27:47,080 --> 00:27:49,399
Speaker 1: have a model that tells me how long COVID zero

490
00:27:49,440 --> 00:27:52,320
Speaker 1: policies are going to be ongoing in China. I don't

491
00:27:52,320 --> 00:27:54,480
Speaker 1: have a model for who's going to be running the FED.

492
00:27:54,840 --> 00:27:57,359
Speaker 1: I actually don't have a lot of historical data that

493
00:27:57,359 --> 00:28:00,040
Speaker 1: tells me how to deal with supply chain disruptions. A

494
00:28:00,040 --> 00:28:03,160
Speaker 1: lot of our supply chain disruption forecast are actually based

495
00:28:03,240 --> 00:28:06,120
Speaker 1: on survey data or what economists called soft data. Makes

496
00:28:06,160 --> 00:28:09,480
Speaker 1: it's a little uncomfortable because it's based on opinions. So

497
00:28:09,560 --> 00:28:11,360
Speaker 1: there's a lot of data out there that we're gonna

498
00:28:11,400 --> 00:28:15,520
Speaker 1: call known unknowns that create a really challenging two. I'm

499
00:28:15,560 --> 00:28:19,320
Speaker 1: writing my forecasts right now and the title please us

500
00:28:20,359 --> 00:28:22,119
Speaker 1: forward look on that. Come on, we gotta make some

501
00:28:22,200 --> 00:28:26,000
Speaker 1: news this morning. I'll tell you my forecast is called

502
00:28:26,040 --> 00:28:29,160
Speaker 1: the anti forecast, because for the first time, I think

503
00:28:29,400 --> 00:28:32,080
Speaker 1: it's really critical that we acknowledge just the extent of

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00:28:32,160 --> 00:28:34,879
Speaker 1: uncertainty in two and I don't book a lot of

505
00:28:34,920 --> 00:28:37,240
Speaker 1: interviews by saying we're not sure what's going to happen.

506
00:28:37,320 --> 00:28:41,560
Speaker 1: That's not a great rate, but there is a really

507
00:28:41,800 --> 00:28:44,800
Speaker 1: important moment here where we acknowledge uncertainty is a proper

508
00:28:44,880 --> 00:28:48,000
Speaker 1: risk management tool and just how binary the Central bank

509
00:28:48,040 --> 00:28:51,000
Speaker 1: outlook is. Francis, I love that. I'm looking forward to

510
00:28:51,040 --> 00:28:53,920
Speaker 1: reading it. When does it come out soon? I'm getting

511
00:28:53,920 --> 00:29:00,000
Speaker 1: to work. Okay, okay. This is the Bloomberg Surveillance Podcast.

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00:29:00,040 --> 00:29:03,760
Speaker 1: Asked thanks for listening. Join us live weekdays from seven

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00:29:03,800 --> 00:29:07,440
Speaker 1: to ten am Eastern on Bloomberg Radio and on Bloomberg

514
00:29:07,480 --> 00:29:11,960
Speaker 1: Television each day from six to nine am for insight

515
00:29:12,200 --> 00:29:16,400
Speaker 1: from the best in economics, finance, investment, and international relations.

516
00:29:16,880 --> 00:29:21,520
Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

517
00:29:21,680 --> 00:29:25,280
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

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00:29:25,320 --> 00:29:28,040
Speaker 1: Tom Keene and this is Bloomberg