Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminal. John, I've never
Speaker 1: seen a point, even the crisis of oh seven oh eight,
Speaker 1: where there's so many t decisions out there that we're
Speaker 1: all going to make off of a natural disaster. Let's
Speaker 1: start right there with Mohammed al Arian, quaits college president
Speaker 1: and Bloomberg opinion columnist in place to say, joins us
Speaker 1: right now, Mohammed two way risk? Do you think we're
Speaker 1: appreciating the two way risk a little bit more we
Speaker 1: are in the marketplace? I think the FED as yet
Speaker 1: hasn't It is absolutely convinced that there's just one outcome,
Speaker 1: so it's baseline is having a very high probability of materializing,
Speaker 1: whereas the marketplace is starting to think more in terms
Speaker 1: of a distribution of outcome that's tilted towards a horder
Speaker 1: economy than what the FED expects. Do you think Mohammad
Speaker 1: has an era of judgment, or just the factor of
Speaker 1: the seat you're sitting in. If your market participant, you
Speaker 1: have to recalibrate day to day the balance of risk.
Speaker 1: If your policymaker, you just like is a focused on
Speaker 1: the destination. Now that's new, John. Remember we used to
Speaker 1: be forecast based, which would allow you to cause correct
Speaker 1: as you saw information come in. Now the FED on
Speaker 1: this new monetary framework has become outcome based. And when
Speaker 1: you are outcome based, you don't cause correct as you
Speaker 1: go along. You wait for the outcome. And what the
Speaker 1: market is realizing now is that there's a downside to
Speaker 1: being outcome based when there are structural changes going on.
Speaker 1: The big message of the huge data miss, be it
Speaker 1: on Friday or yesterday, is that when the are structural
Speaker 1: changes going on in an economy, it becomes very difficult
Speaker 1: for economists to foecus with any degree of accuracy. Mohammad,
Speaker 1: I want to go to the mathematical hierarchy, the architecture
Speaker 1: that we have right now, and we do this in
Speaker 1: honor of your Queen's College and the mathematical bridge that
Speaker 1: I know you've walked across the mathematical bridge right now
Speaker 1: to two thousand twenty three. It's not in any of
Speaker 1: the textbooks, is it. So then what do we use?
Speaker 1: So we have to have an open mindset and a
Speaker 1: lot of humility. We have to recognize that we have
Speaker 1: to think in terms of a range of scenarios and
Speaker 1: not get become hostage to a single baseline. And we
Speaker 1: have to be able to make to cause correct. You know,
Speaker 1: this is the lesson of the past when you have
Speaker 1: take structural changes. And what's so important, your Dr Larian
Speaker 1: is the idea that we have a set of outcomes.
Speaker 1: The gloom crew, which you're not part of, pounces on
Speaker 1: this every day with the great negativity. Do you have
Speaker 1: a confidence that corporate officers can adapt and adjust to
Speaker 1: some form of set of positive outcomes. Yeah, the ones
Speaker 1: I speak to are very open to the possibility that
Speaker 1: there are more outcomes out there than they've faced in
Speaker 1: the past. So what you hear over and over again
Speaker 1: is this notion of resilience, this notion of optionality, being
Speaker 1: able to change your mind, this notion of agility, being
Speaker 1: able to move quickly when you have clarity, But that
Speaker 1: they are much more data dependent than policymakers have become
Speaker 1: policymakers now are focused on a destination with a degree
Speaker 1: of conviction Tom that isn't match with foundation and evidence,
Speaker 1: and that's really unusual in our recent economic history. And John,
Speaker 1: you saw this yesterday with City Group where they talked
Speaker 1: about the resilience of the United Kingdom economy and ma
Speaker 1: homm chief said, they've been had hostage policymakers. This Federal
Speaker 1: Reserve is how hostage by its own framework. How do
Speaker 1: you think that being howed hostage right now? So the
Speaker 1: framework was the product of a certain world, and that
Speaker 1: was the world pre pandemic. It was a world of
Speaker 1: deficient aggregate demand that had persisted for a while. That
Speaker 1: was the world the FED was formulating its framework force.
Speaker 1: And I have a lot of sympathy that that framework
Speaker 1: made sense for that world. In a world like that
Speaker 1: where the supply side is relatively stable structurally, where you
Speaker 1: have a persistent deficiency of aggregate demand, you go to
Speaker 1: average inflation targeting and you keep on signaling to the
Speaker 1: market over and over again that your outcome based. That
Speaker 1: is not the world we live in today. It is
Speaker 1: very hard for anybody to argue that we have a
Speaker 1: deficiency of aggregate demand. We don't neither on the public sector,
Speaker 1: on the private sector, and on the on the supply side.
Speaker 1: There are fundamental structural changes going on in the world
Speaker 1: like that. You need optionality, You need to be able
Speaker 1: to change your mind. You cannot be pinned in a
Speaker 1: corner that says I will make up my mind after
Speaker 1: I see many months of data, because by that time,
Speaker 1: if you're wrong, playing catch shop is really problematic. And
Speaker 1: what you're seeing is the market is actually being much
Speaker 1: more measured in how it's looking at risk, while the
Speaker 1: FED is pinned in a corner holding onto its conviction
Speaker 1: even though there isn't even though the evidence increasingly says
Speaker 1: be open on it. Through a little bit more humility,
Speaker 1: I'm Gonula asked this question advice check Clarida. How do
Speaker 1: you know if you're wrong? What do you think would
Speaker 1: sell them if they're wrong? So he answered that question
Speaker 1: to you. He said, by the end of the year
Speaker 1: or the beginning of next year, we will know. And
Speaker 1: that's why they are not quote thinking about thinking. So
Speaker 1: think how many stages you have you have to go
Speaker 1: from thinking about thinking to thinking. Then you've got to
Speaker 1: start explaining how are you gonna taper? Then you're gonna
Speaker 1: start tapering. And remember they had no good answer to
Speaker 1: Mike mckie's question about what if you buy a hundred
Speaker 1: and ten million billion a month? What if you buy
Speaker 1: a hundred billion a month? Right? So, so they are
Speaker 1: very far away because they are in this outcome based
Speaker 1: a quote. So, and that's what the marketplace realizes is
Speaker 1: by the time the Fed figures out did they make
Speaker 1: the right call on transitory inflation? If they are wrong,
Speaker 1: the adjustment process itself could end up sending the economy.
Speaker 1: Let me just jump in because I think this is
Speaker 1: really important. When Mike McKie asked this question, does a
Speaker 1: hundred and twenty billion get it done? A hundred and
Speaker 1: ten a hundred billion? The pushback from the likes of
Speaker 1: Neil cash Gari, it's a it's the same. This is
Speaker 1: the labor market, it's week and we need to support it.
Speaker 1: What I think they're failing to communicate right now is
Speaker 1: how billions upon billions of dollars of MBS purchases actually
Speaker 1: help them achieve that goal. Do you think the asset
Speaker 1: purchase program is helping them achieve that goal? Especially when
Speaker 1: we spent the last several weeks talking about a supply
Speaker 1: side problem. It's not helping them because they can't deal
Speaker 1: with the supply side of the economy. They can't lift
Speaker 1: supply bottlenecks by flooding us with liquidity. They cannot improve
Speaker 1: the functioning of the labor market. They cannot open schools
Speaker 1: with liquidity. They cannot improve childcare with liquidity. They cannot
Speaker 1: have a better matching of skills to demand with liquidity.
Speaker 1: And that's the problem. Um, we should spend more time
Speaker 1: looking at what the Bank of Canada did with the
Speaker 1: Bank of England did and say why is it that
Speaker 1: they feel confident they can taper a little bit, whereas
Speaker 1: the fact is really afraid. Oh, Mohammed, this is like
Speaker 1: a three hour conversation or control rooms deciding if we
Speaker 1: want to go there right now, have another biscuit baked
Speaker 1: in fourteen Mohammed, I want this is really really important, folks,
Speaker 1: what we're talking about here. And I'm gonna go back
Speaker 1: Dr Larry into your essay of five years ago on
Speaker 1: the delusion of liquidity. Let us speak now, and I'm
Speaker 1: not putting this in the year words the Delusian ab
Speaker 1: outcome based we're trying to rationalize an ex post structure,
Speaker 1: as you say, and I'll really lean on Canada here.
Speaker 1: They've had the courage to get away from an ex
Speaker 1: post structure. What is the mechanism the United States does
Speaker 1: or uses the Federal Reserve to drag themselves away from
Speaker 1: a deeply expost reality. I hope a robust internal discussion
Speaker 1: can be deducted in a in a safe zone that
Speaker 1: looks at the evidence and doesn't get dogmatic in terms
Speaker 1: of if we change our framework at this state, we
Speaker 1: lose credibility. That's going to be absolutely critical. They have
Speaker 1: to be open minded given the structural changes going on
Speaker 1: in the economy. Tak, do you not think that the
Speaker 1: stakes are higher for the Federal Reserve? They are just
Speaker 1: because of dollar, just because of dollar. Talking about typering
Speaker 1: at the Federal Reserve? Can you imagine the impact we
Speaker 1: would have had at your thoughts out on that. This
Speaker 1: is so important John, as you bring up I mean, Mohammed,
Speaker 1: what is the outcome of a Canada like taper by
Speaker 1: your own power? Well, that's what scares them because they
Speaker 1: remember not just May June, but they also remember the
Speaker 1: massive U turn they had to do in January of
Speaker 1: nine when the marketplace didn't like the message. They're back
Speaker 1: to the Bank of Japan fifteen or eighteen years ago.
Speaker 1: That's how tid they are, and and and tom. The
Speaker 1: question that the marketplace asks is what if we're wrong?
Speaker 1: What's the recoverability of the mistake? How we coverable is
Speaker 1: a mistake? That is what people in the marketplace ask. So,
Speaker 1: so if you think in that world, whereas there's lots
Speaker 1: of uncertainty, I may end up making a mistake. So
Speaker 1: instead of insisting that I'm gonna be white, let me
Speaker 1: ask the question, if I make a mistake, what mistake
Speaker 1: would I abou to make? I think you would end
Speaker 1: up with a different outcome than where the FED is today.
Speaker 1: So I see me right. The build unly paced early
Speaker 1: this week Mohammed on where the FED funds right could go.
Speaker 1: I've really struggled with it. Many others did too, This
Speaker 1: idea that we could tolerate a fat funds right with
Speaker 1: a full hand, Dole, what did you make that pace?
Speaker 1: So he's talking purely in terms of policy, and the
Speaker 1: economy can tolerate higher rates, And I'm not advocating higher rates,
Speaker 1: by the way, I'm advocating a taper of the que program.
Speaker 1: I just want to be straight. Um. The problem drawn
Speaker 1: as you saw it yesterday. You know, we've focused on
Speaker 1: the fact that equity is sold off, but you know
Speaker 1: what bonds sold off, bitcoins sold off, goal sold off.
Speaker 1: And what you see is the reverse of what we've
Speaker 1: seen earlier, which is when there's some doubt about the
Speaker 1: liquidity paradigm which has supported all asset classes, they so
Speaker 1: called everything rally, when some doubts surface, and very small
Speaker 1: doubts have surfaced so far, nothing major market sell off
Speaker 1: across the board. There is nowhere to hide, and that's
Speaker 1: what the FED is afraid of. That you have a
Speaker 1: marketplace where there is nowhere to hide, and when there's
Speaker 1: nowhere to hide, people start doing um city things. So
Speaker 1: that's what the FET is afraid of. It doesn't want
Speaker 1: unsettling financial volatility to contaminate the economy. The problem is,
Speaker 1: if it ends up being wrong, you will have at
Speaker 1: the same time policy slamming the brakes on and the
Speaker 1: marketplace tightening as well, and that's how you end up
Speaker 1: in a recession. That's why it's better to be somewhat
Speaker 1: preemptive then to wait till the last thing. I don't
Speaker 1: think there will be, but certainly I would argue they
Speaker 1: need to be mahamma just to found a question. Then
Speaker 1: how would you be positioned ahead of what you think
Speaker 1: could be a messy summer? It is really hard because
Speaker 1: you're being You're being challenged both on return generation and
Speaker 1: risk mitigation at the same time. So sophisticated investors will
Speaker 1: look at tail hedges and that's why the Vicks moved away.
Speaker 1: It moved yesterday, um, But for the average investor it's
Speaker 1: hard now. The average investor, in fact, all of us
Speaker 1: are hoping that the fet is right, because if the
Speaker 1: feed is right on its huge transitory inflation call, then
Speaker 1: we can have a smooth transition both economic policy as
Speaker 1: well as a smooth market adjustment. But it's a huge
Speaker 1: gamble at this point. Mom and I want to go
Speaker 1: to Cambridge Economics and unfortunately have very little time, not
Speaker 1: from Thomas melt there so the lawyer Angus Deaton. But
Speaker 1: I want to go back to the idea of Nikki Keldor,
Speaker 1: who believes in a public solution. Are we going to
Speaker 1: get a public solution here or have we overreached so
Speaker 1: so the public solution comes to make the FED more
Speaker 1: comfortable about its ability to taper by being better on
Speaker 1: potential supervision and regulation. One of the things that is
Speaker 1: not spoken about is that risk has migrated and moved
Speaker 1: from the banks to the non banks, but the supervisor
Speaker 1: and regulatory system is seriously lagging this. And I suspect
Speaker 1: if the FED had more confidence in the supervision and
Speaker 1: regulation of non banks, it would feel more comfortable on
Speaker 1: the monetary policy side. Mohammed, this was way too serious.
Speaker 1: We didn't even get to talk about your meds, succeeds, success,
Speaker 1: want to be I don't want him, I don't I
Speaker 1: don't want Tom to jinx them. So please, let's not
Speaker 1: talk about my mets. We are all quietly watching this.
Speaker 1: We've seen this movie before. We get hope for we
Speaker 1: get grabbed in and then we get dumped. Right. Is
Speaker 1: it seven games now, John? And we're not commenting on
Speaker 1: either the seven game win next week or first place
Speaker 1: A Mohammed, It's gonna catch up. It's great to catch up.
Speaker 1: It's really good to see a mohammed erin their Queens
Speaker 1: College president and Bloomberg opinion columnists always generous. Dennis Gartman
Speaker 1: joins us, now retired editor of The Gartman Letter, with
Speaker 1: the University of Akron and domind fund as well done.
Speaker 1: It's I got eight ways to go, But I've got
Speaker 1: to start with the market reaction. Here. You and I
Speaker 1: know this is not a correction, it's not a bear market.
Speaker 1: It's a little bit of what the French call agitasia.
Speaker 1: What do you do when you get this cacophany of events.
Speaker 1: I think you have to be very careful. I've really
Speaker 1: not like stocks for the last two months especially, I
Speaker 1: have not liked high tech. I've I like the things
Speaker 1: I've made it some somewhat famous. I like the things
Speaker 1: that if you drop them on your foot will hurt.
Speaker 1: I'd like copper steel, tin, aluminum, automobiles, tires, that sort
Speaker 1: of thing, railroads, those sorts of very simple things. But
Speaker 1: I've been very ambivalent. Actually, I've been very barish about
Speaker 1: the stock market generally. And I think that we're going
Speaker 1: to have a bounce today. You can't take the dow
Speaker 1: down what points in the course of three days and
Speaker 1: not have some return, some bounce from the lows. But
Speaker 1: what bothers me, or what we should watch for, is
Speaker 1: how the volume comes in. The volume came in yesterday
Speaker 1: on the downside, very hard. If we have a bounce
Speaker 1: today and the volume is less, the volume is limited,
Speaker 1: and I think it shall be, that'll be a deletarious circumstance,
Speaker 1: So be very I still think you have to be
Speaker 1: very careful. I think that the Dow can go down
Speaker 1: another several thousand points from you that's so much called,
Speaker 1: and still be within the confines of the long term
Speaker 1: multi year secular bowl market. But you could fall off
Speaker 1: quite some distance in the next month or two. Us
Speaker 1: You and I have argued over this beverage of our choice,
Speaker 1: and that is the study of volume. I don't believe
Speaker 1: in it. You do. Is the volume study today the
Speaker 1: same it was what was when you and I were
Speaker 1: holding the standard and pours blodder in her hand, trying
Speaker 1: to figure out what to buy next. I think it does, Honestly.
Speaker 1: I still believe that good markets go up on strong
Speaker 1: volume and fall on weak volume, and weak markets go
Speaker 1: up on lesser volume and down on strong volume. And
Speaker 1: that's what we've seen in the course of the past
Speaker 1: several months, is that the rallies have been on very
Speaker 1: light volume, the declines have been on very steep volume.
Speaker 1: And I think that that was the precursor to this weakness.
Speaker 1: We'll see if if my thesis holds, will see if
Speaker 1: your thesis holds. But I think right now watching the
Speaker 1: volume is a very important circumstance to pay attention to.
Speaker 1: And I think it's barish at this point. And Dennis,
Speaker 1: some people trying to work out how they protect themselves
Speaker 1: because quite clearly, if the risk is inflation that you
Speaker 1: don't protect yourself with treasury bonds because you know too
Speaker 1: high yesterday too, what do you do? Do you raise
Speaker 1: some cash, keep some dry Piet when you pull back
Speaker 1: a deep risk, what is the actually look like? Dennis Well,
Speaker 1: as the chairman of the University of Akron's endowment, I
Speaker 1: actually pushed hard and we we moved in February to
Speaker 1: reduce our exposure to the equities market by three percent,
Speaker 1: which in in endowment land, that's a material change. When
Speaker 1: you reduce anything by one or two or three percent,
Speaker 1: you've made a material change. And we actually took a
Speaker 1: position in gold to hedge out inflation risk. That's proved
Speaker 1: to be wise. I've been very lucky thus far from
Speaker 1: given the fact that we've made that change. In very
Speaker 1: late February, the rustle's down about four or five percent
Speaker 1: from that level and golds up five or six percent.
Speaker 1: Call it good luck, call it fortune, call it maybe
Speaker 1: a wise trade. But I think reducing exposure to the
Speaker 1: equities market, raising a little cash, buying a little gold,
Speaker 1: buying tips probably is not a bad idea, and buying
Speaker 1: monthly dividend paying e t f s that that are
Speaker 1: well covered, and I think that's that's the way to go.
Speaker 1: Raising cash is not a bad thing at this point.
Speaker 1: Let's talk about gold, because that's a really really interesting point.
Speaker 1: When you moved, as you describe it, that has been
Speaker 1: a good play. Over the last couple of weeks. We've
Speaker 1: had to move off the month slows. It hasn't worked
Speaker 1: all year, though, even though inflation is dominated the conversation.
Speaker 1: Yesterday another example, it was down about one percent, even
Speaker 1: though the key theme was inflation. What's been going on
Speaker 1: do you think, Dennis, just in terms of relationship between
Speaker 1: inflation and gold, I think millennials at the balance like
Speaker 1: to like to speculate, or like to take positions with
Speaker 1: their with their stimulus checks uh in in bitcoin and
Speaker 1: in ethereum and the rest of them. And I think
Speaker 1: that that's been a drain at the margin at the
Speaker 1: all price of all the commodities, all price of all stocks,
Speaker 1: all price of all bonds is actually made at the margin.
Speaker 1: When the last two percent of the buyers become sellers.
Speaker 1: When the last two percent of the sellers become buyers,
Speaker 1: that's when price changes. And I think we've seen some
Speaker 1: movement on the part of an investors into bitcoin, into
Speaker 1: the cryptocurrencies, and away from gold. However, I'll think that
Speaker 1: the several thousand years history of gold will will will
Speaker 1: trump the five year or six years, seven year history
Speaker 1: of the cryptocurrencies. But I think that's cryptoes that have
Speaker 1: been the pressure point very quickly. Or Dennis, it's ninety
Speaker 1: six dollars at four dollars a gale and for you
Speaker 1: to fill up the Bentley, you know, ninety liters. It's
Speaker 1: a twenty four galon tank. Tell you're living in the
Speaker 1: heart of this no gasolene thing. Is it all over again?
Speaker 1: It feels like it it has that that looked to it.
Speaker 1: There are the lines at some of the service stations
Speaker 1: around here in Southeast Virginia, especially on Tuesday, we're very long,
Speaker 1: very very surprising. It's you can find gasoline in the
Speaker 1: morning when the tanker trucks come in, but by noon
Speaker 1: they're they're running out of running out of gas. And
Speaker 1: it does have that feel of the nineteen seventies when
Speaker 1: the odds and even license plate numbers were allowed to
Speaker 1: go and buy gasoline. It's a this will resolve itself. Obviously,
Speaker 1: the colonial pipeline said that they're gonna be back online
Speaker 1: or camera back online last night. It's the last mile.
Speaker 1: It's difficult. By the weekend we'll be it should be resolved.
Speaker 1: I'm so sorry as the typo there, Dennis, I gotta
Speaker 1: get this corrected. Dennis Carbon thinks so much wonderful to
Speaker 1: see you. This is a really really important interview. And
Speaker 1: let me put it in context. James Sweeney literally staked
Speaker 1: his career three or four years ago by saying, Europe,
Speaker 1: get over it. There's not going to be deflation, there's
Speaker 1: not going to be disinflation. You're wrong, wrong, wrong. The
Speaker 1: credit sweet chief Economists joins us. Right now is the
Speaker 1: tables have been turned towards worry of rising inflation. James Sweeney,
Speaker 1: should we fear a redux of the nineteen sixties? M
Speaker 1: hm um no. I think we should be open minded
Speaker 1: to that risk. But I think what we're really talking
Speaker 1: about here on the upside is you know, core inflation
Speaker 1: running for a year something like that. Um that that's
Speaker 1: not our forecast. It's a little bit higher than our forecast.
Speaker 1: But I think the evidence is mounting that that kind
Speaker 1: of outcome could happen. If that happens, that's not the
Speaker 1: end of the world. That's kind of maybe it's nineteen
Speaker 1: sixty six to nineteen sixty seven, sixty eight before inflation
Speaker 1: really got out of hand at the end of the
Speaker 1: sixties and into the eighteen seventies. But the FED is
Speaker 1: going to handle that in a different way than they
Speaker 1: than they did in eighteen sixties. And um, you know,
Speaker 1: it's it's it's not the end of the world, but
Speaker 1: it is a big change for financial markets and thinking
Speaker 1: about what happens to monetary policy. Uh, if we get
Speaker 1: that outcome is really important for for us at christ.
Speaker 1: How do you expected inflation expectation consumer inflation expectations to
Speaker 1: shape up, James, given the experience that they're having right
Speaker 1: now in this country. You know, I don't really know
Speaker 1: what consumer inflation expectations are. Um, you know, these are
Speaker 1: these are strange surveys. Most people I know don't have
Speaker 1: a clear sense of of what they're answering when they
Speaker 1: When they answer that question, usually those surveys people are saying,
Speaker 1: what's happened to gasoline prices? Um, But you know, the
Speaker 1: question is are the surveys stable? Like in my view
Speaker 1: that when inflation expectations increase and it leads to inflation,
Speaker 1: what that really means is not that a bunch of
Speaker 1: surveys jumps. It means that people have started buying more
Speaker 1: stuff because they think the stuff is going to be
Speaker 1: more expensive in the future. So to me, the expectation
Speaker 1: has to be embedded in the demand behavior to actually
Speaker 1: get a problematic inflation spiral. And you know the risk
Speaker 1: of that is rising. But um, but we're not there
Speaker 1: right now. We're in a we're in a data fog
Speaker 1: period where we're reopening and there's vaccinations and there's base effects.
Speaker 1: You know that there's and there's supply chain issues. So
Speaker 1: you know the risk of it is rising, but we
Speaker 1: should be a little careful about jump into extreme conclusions.
Speaker 1: That's the point I'm trying to get to hit James,
Speaker 1: because we can have this real need, deep intelligent conversation.
Speaker 1: You can run me through all the different paths in
Speaker 1: this inflation basket. They're driving inflation higher. It's the experience
Speaker 1: of everyday people with prices that will really set the
Speaker 1: tone here. And I'm trying to understand how you will
Speaker 1: gauge when you will know that those expectations for higher
Speaker 1: prices become embedded in prices and become higher prices and
Speaker 1: this becomes a virtuous cycle. Well, there's two there's two things.
Speaker 1: I mean, one is I want to see the demand acceleration.
Speaker 1: So right now, it's gonna be really hard for retail
Speaker 1: sales to continue to accelerate. I mean, maybe tomorrow will
Speaker 1: be up, but in level terms, are probably near a
Speaker 1: longer term peak in retail sales because we've just had
Speaker 1: so much income. But on the services side, which is
Speaker 1: two thirds of inflation, it's a little different because we
Speaker 1: all want to rush out of our houses and consume
Speaker 1: in person services, recreational services. Those are labor intensive businesses.
Speaker 1: They're gonna have to hire a lot of people. What's
Speaker 1: gonna happen to So so we're gonna be looking at demand,
Speaker 1: but we're also going to be looking at how much
Speaker 1: wage pressure are we seeing? And I think it's gonna
Speaker 1: take a little while before we have good information on wages.
Speaker 1: I mean, our average hourly earnings are not good information
Speaker 1: on but the anecdotes are definitely mounting that that this
Speaker 1: that this process is at least in its early stage.
Speaker 1: You guys are writing my script. That's right where I
Speaker 1: wanted to go. James Sweeney, what's joyous about your notes?
Speaker 1: As you've got microeconomics in them and you really emphasize
Speaker 1: this time around that's supply demand in inventories really matter.
Speaker 1: But with that, how do you digest the McDonald's headline
Speaker 1: we saw an hour ago, John, help me here, all
Speaker 1: of a sudden we got one, two, three, four, five
Speaker 1: companies going up to ten thousand X employees clearly near
Speaker 1: fifteen dollars. How does that filter into supply and demand? Well,
Speaker 1: I mean that's that's your margin issue. Actually, that's true,
Speaker 1: that's your wage issue. This is a labor market supply
Speaker 1: and demand issue. When you're when you're talking about that,
Speaker 1: so you know the question is you know, first, Okay,
Speaker 1: so McDonald's just facing a little bit of trouble hiring workers.
Speaker 1: They need to raise wages. That's fine, we understand. So
Speaker 1: that eats into their margins Are they going to raise
Speaker 1: prices on their food as a result. They might not,
Speaker 1: They might just eat the margin increase. We we don't know,
Speaker 1: but I think it's it's you know, this is again
Speaker 1: just another symptom. I mean, the commodity pricing creasy even
Speaker 1: is a symptom. There are symptoms all over the place.
Speaker 1: But we need, you know, the nerds in the data
Speaker 1: need to see sufficient breadth across these, both inflation and
Speaker 1: price and disease to you know, to to to be
Speaker 1: confident that we're going to actually have a real issue
Speaker 1: that is unlike anything in the past, in the past
Speaker 1: thirty years. For now, you know, you're looking at inflation
Speaker 1: overshooting right now from base effects, potentially coming a little
Speaker 1: bit lower after that. But is it gonna settle back
Speaker 1: down and kind of tune and a half percent or lower,
Speaker 1: or is it going to be kind of three three
Speaker 1: percent higher? And again from a market perspective, that's absolutely
Speaker 1: critical from the Fed's perspective. In either way, they're gonna
Speaker 1: say it's temporary, but that's not you know, who cares temporary.
Speaker 1: What we care about is when are they gonna hike?
Speaker 1: Is this going to change the tapering schedule? Housing market
Speaker 1: going to react. Is this the regime shift that we
Speaker 1: can't even get inflation up there? Because not long ago,
Speaker 1: as you know, a lot of people thought you couldn't.
Speaker 1: James James tweety very quickly here the Brethren and Zurich
Speaker 1: email in and say, would you please ask the question
Speaker 1: about the German tenure James Sweeney, what is the symbolism
Speaker 1: when Germany tenuere goes positive? His Swiss twenty year diad
Speaker 1: ages ago? Well, I mean, you know, European yields are
Speaker 1: are are rising, and there's a little bit of an
Speaker 1: expectation now that that European growth a few months out
Speaker 1: could actually start accelerating relative to the US because we've
Speaker 1: had our massive stimulus push um in the spring, and
Speaker 1: it turns out they're actually vaccinating at a reasonable pace
Speaker 1: now across across Europe, so rates arising. But you know,
Speaker 1: going back to the inflation part, it's hard to see
Speaker 1: much of that inflation in Europe. Historically, when you get
Speaker 1: a proper inflation wave going way back, they tend to
Speaker 1: be pretty correlated across major economies. But but right now,
Speaker 1: you know, the inflation outlook in Europe is going to
Speaker 1: have a little base effect just like the US. But
Speaker 1: the big pictures is you're still looking at sluggish inflation
Speaker 1: well below two percent for the foreseeable future in the Eurozone.
Speaker 1: James Small, as always, we spent nothing less. Gen Sweeny,
Speaker 1: Chief Economist. Right now, Julie Norman is with us with
Speaker 1: the University College London. She is a political science professor
Speaker 1: and she is so competent. She has a set of
Speaker 1: wheelhouses and one of them is the levant and the
Speaker 1: challenges of Israel with all the various Arab nations of
Speaker 1: the region. Dr Norman, good morning, we have nine, we
Speaker 1: have nineteen sixty seven. Can you say that two thousand
Speaker 1: twenty one alludes to those periods of conflict? Well, good morning, Tom. Obviously,
Speaker 1: what we're seeing now is the highest level of violence
Speaker 1: and escalation that we've seen in a number of years.
Speaker 1: With that said, it mirrors very much the Gods of
Speaker 1: Wars that we saw in pretty recent memory two thousand
Speaker 1: two nine, when we again saw this kind of perfect
Speaker 1: storm of events coming together that quickly escalated into rockets
Speaker 1: coming into Israel and air strikes going back to Gaza,
Speaker 1: and unfortunately, with that, of course, the civilian casualty rates
Speaker 1: going up very quickly, already over sixty today. I want
Speaker 1: to get up the map, but I don't want to
Speaker 1: look at the racket trajectory. We can study that, We'll
Speaker 1: have experts tell us about that. But Professor Norman, I'm
Speaker 1: fascinated by the distance of Gaza to the Old City
Speaker 1: and to the Mosque under question, one of the great
Speaker 1: sites of Islam. What is the distance for the people
Speaker 1: of Gaza to what they venerate in the Old City
Speaker 1: of Jerusalem mo time. I think it's so important to
Speaker 1: underscore here is that Jerusalem and the Oxomasque in particular
Speaker 1: are very important to Palestinians and definitely the Palestinian Muslims,
Speaker 1: no matter where they're located in their region. And indeed
Speaker 1: Hamasked was very savvy over these last few weeks in
Speaker 1: linking much of their politics and campaigns to what was
Speaker 1: going on in Jerusalem, and linking the Palestinian cause as
Speaker 1: always what was happening in Jerusalem. In terms of physical distance,
Speaker 1: it's not too far either, but due to the way
Speaker 1: the restrictions are set up right now in Israel Palestine,
Speaker 1: people from God that have not been able to go
Speaker 1: to Jerusalem Forum for years now. But still very much
Speaker 1: resonance in terms of what it means the people shocking.
Speaker 1: It's shocking, Dr Norman, the fragility of democracy in Israel.
Speaker 1: I've been told by some reports and the Times in
Speaker 1: the Washington Post of the election transfer being within minutes
Speaker 1: literally before this war came out. How do you link
Speaker 1: the Net and Yahoo transfer power if you will, to
Speaker 1: this conflict. Are they truly linked or are they separate
Speaker 1: and unimaginably close issues. Well, everything is aligning in a
Speaker 1: certain way right now. I think the tinder box that
Speaker 1: has erupted, so to speak, in these last few weeks,
Speaker 1: was due to a number of causes. But we have
Speaker 1: seen is the leadership crisis on both sides feeding into it,
Speaker 1: and we see politicians on both sides definitely exploiting the
Speaker 1: moment for Net and Yahoo. Of course, right now, coming
Speaker 1: out of this fourth attempt to try and form a
Speaker 1: government unable to do so, he is now trying to
Speaker 1: frame his response to this as showing why he should
Speaker 1: stay in power. His opponents and critics are of course
Speaker 1: saying this is the reason why it's time for him
Speaker 1: to step aside. And on the Palestinian side, we again
Speaker 1: see a lot of jockeying between the Palestinian authority and
Speaker 1: ham ask for who can be the voice for Palestinians
Speaker 1: and for resistance. Julie brief us on the new Hammas
Speaker 1: they have evolved over the years. Americans have a memory
Speaker 1: of a most difficult Beirut. There's fought and the rest.
Speaker 1: Give us a tone of the new Hamas even as
Speaker 1: Israel announces they have assassinated selected leaders. Yes, so Hamas
Speaker 1: has held control of the Goddess Stripped for the last
Speaker 1: fifteen years. That was after they were successful in the
Speaker 1: two thousands fifth legislative elections in Palestine. That was a
Speaker 1: real shift for him As in a kind of quasi normalization,
Speaker 1: for being solely a resistance militant group to being a
Speaker 1: political group as well. Now they kind of operate with
Speaker 1: both of those wings, the political group UM governing in
Speaker 1: a way in Gaza, whereas their militant wing carrying out
Speaker 1: these rocket attacks primarily. UM still in some ways have
Speaker 1: popular support in terms of being a voice of resistance
Speaker 1: in terms of their social services, but a lot of
Speaker 1: disillusionment in Palestine also with him As because of their
Speaker 1: lack of ability to govern properly. Julie Norman. Thank you
Speaker 1: so much there on the conflict that we see in
Speaker 1: Gaza and many people saying it edges towards or She
Speaker 1: is with the University of College of London. This is
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live
Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio
Speaker 1: and on Bloomberg Television each day from six to nine
Speaker 1: am for insight from the best in economics, finance, investment,
Speaker 1: and international relations. And subscribe to the surveyor this podcast
Speaker 1: on Apple podcast, SoundCloud, Bloomberg dot com and of course
Speaker 1: on the terminal. I'm Tom keene In. This is Bloomberg
Speaker 1: m