1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:30,480 Speaker 1: and of course, on the Bloomberg Terminal. Okay, what we're 6 00:00:30,480 --> 00:00:32,680 Speaker 1: gonna do right now is bringing David Constant. He is 7 00:00:32,760 --> 00:00:35,440 Speaker 1: chief US Equity Strategies for Goldman Sachs. We've got a 8 00:00:35,440 --> 00:00:39,040 Speaker 1: whole bunch of questions as he resets for SMP five thousand, 9 00:00:39,360 --> 00:00:42,319 Speaker 1: But David Constant, we must celebrate as you do at 10 00:00:42,320 --> 00:00:46,559 Speaker 1: Goldman Sachs with a fully staffed team. Constant, today in 11 00:00:46,600 --> 00:00:50,320 Speaker 1: the office, I want you to explain the path to 12 00:00:50,400 --> 00:00:54,120 Speaker 1: get your team ascons at Goldben Sacks again. Well, I 13 00:00:54,440 --> 00:00:57,760 Speaker 1: uh want to definitely congratulate all of our whole team. 14 00:00:57,760 --> 00:00:59,360 Speaker 1: The entire team is here for the first time in 15 00:00:59,440 --> 00:01:03,040 Speaker 1: fifteen US UH so we're pretty happy about that and 16 00:01:03,160 --> 00:01:06,560 Speaker 1: the process has been halting. We had some density restrictions 17 00:01:06,560 --> 00:01:09,320 Speaker 1: in terms of the seating arrangements, but given the way 18 00:01:09,360 --> 00:01:11,600 Speaker 1: we've been able to use some extra offices. We're all 19 00:01:11,640 --> 00:01:14,120 Speaker 1: here today, so I'm happy about that. We'll change is 20 00:01:14,200 --> 00:01:15,920 Speaker 1: David for you. As the team gets back around the 21 00:01:15,959 --> 00:01:19,640 Speaker 1: table together again, what's the big difference. Well, the difference 22 00:01:19,760 --> 00:01:23,240 Speaker 1: is just the interaction and being able to have small 23 00:01:23,280 --> 00:01:26,959 Speaker 1: conversations about different issues that come up on a computer 24 00:01:27,040 --> 00:01:29,560 Speaker 1: screen and call someone over to point it pointed out. Uh. 25 00:01:29,600 --> 00:01:31,919 Speaker 1: You know, some people wear masks still, but generally speaking, 26 00:01:31,959 --> 00:01:35,880 Speaker 1: everyone everyone, everyone absolutely has been vaccinated, twice vaccinated and 27 00:01:35,920 --> 00:01:39,280 Speaker 1: things like that. It's just a much more efficient way 28 00:01:39,319 --> 00:01:42,320 Speaker 1: to communicate. Of course we're doing that before when people remotely, 29 00:01:42,640 --> 00:01:46,560 Speaker 1: but just an incremental amount of communication. So I think 30 00:01:46,600 --> 00:01:49,320 Speaker 1: that's really helpful on our teams were really happy about 31 00:01:49,560 --> 00:01:52,160 Speaker 1: about that. And I think in my conversation with clients, 32 00:01:52,160 --> 00:01:53,520 Speaker 1: you know, more and more of them seem to be 33 00:01:53,800 --> 00:01:56,280 Speaker 1: to be coming back to UH working from their their 34 00:01:56,480 --> 00:02:00,480 Speaker 1: their offices, and there's different portfolio managers have different time 35 00:02:00,480 --> 00:02:04,480 Speaker 1: time frames UH to re reengage. But right here today 36 00:02:04,920 --> 00:02:07,040 Speaker 1: my team US port follow strategy. We're all here. Well, 37 00:02:07,080 --> 00:02:08,720 Speaker 1: let's shine a light on one of the debates at 38 00:02:08,720 --> 00:02:10,679 Speaker 1: the moment. Imagine you the team happen right now. The 39 00:02:10,760 --> 00:02:13,000 Speaker 1: nastacs made a bit of a bounce. David and early 40 00:02:13,120 --> 00:02:15,720 Speaker 1: in the conversation, ely in the conversation on this program, 41 00:02:15,720 --> 00:02:18,240 Speaker 1: we were talking about whether there is a correlation or 42 00:02:18,240 --> 00:02:20,919 Speaker 1: a causation between what happens with rights and what happens 43 00:02:20,919 --> 00:02:23,320 Speaker 1: with growth, Big tag, What are even the team saying 44 00:02:23,320 --> 00:02:27,600 Speaker 1: about that? So, the interplay between growth and rates and inflation, 45 00:02:27,639 --> 00:02:29,960 Speaker 1: it's obviously has a lot of different dynamics, and I 46 00:02:29,960 --> 00:02:33,480 Speaker 1: would unpack that in sort of two ways. How does 47 00:02:33,560 --> 00:02:38,160 Speaker 1: inflation affect the equity market broadly speaking? And then which 48 00:02:38,160 --> 00:02:40,480 Speaker 1: sectors in particular? And so we think about it. The 49 00:02:40,480 --> 00:02:44,720 Speaker 1: transmission mechanism, on the one hand, is on valuation, because 50 00:02:44,919 --> 00:02:48,000 Speaker 1: the impact of higher inflation leads to generally higher rates 51 00:02:48,000 --> 00:02:51,360 Speaker 1: and that has an impact particularly on the longer duration, 52 00:02:51,440 --> 00:02:55,680 Speaker 1: longer expected growth stocks. But there's also a transmission mechanism 53 00:02:55,720 --> 00:02:59,040 Speaker 1: through margins, and so I think we need to bring 54 00:02:59,160 --> 00:03:01,480 Speaker 1: both of those together. Think about it. What is one 55 00:03:01,520 --> 00:03:04,720 Speaker 1: of the attributes of the technology sector is they have 56 00:03:04,919 --> 00:03:10,000 Speaker 1: extraordinarily high margins and they've been relatively immune upon intended 57 00:03:10,000 --> 00:03:14,440 Speaker 1: their relative immune from the higher inflation curtailing their margins. 58 00:03:14,720 --> 00:03:18,280 Speaker 1: Uh So, on the one hand, you have a suppressing 59 00:03:18,360 --> 00:03:22,000 Speaker 1: or a depressing effect on valuation for inflation and what 60 00:03:22,080 --> 00:03:25,080 Speaker 1: that means for rates and the valuation of that long 61 00:03:25,200 --> 00:03:28,760 Speaker 1: term expected growth. And another hand, you have the durability 62 00:03:28,800 --> 00:03:31,720 Speaker 1: of their margins as compared with some other more cyclical 63 00:03:31,760 --> 00:03:35,600 Speaker 1: sectors where their margins may not be so robust in 64 00:03:35,680 --> 00:03:39,160 Speaker 1: terms of ability to pass through those higher input costs. 65 00:03:39,240 --> 00:03:41,000 Speaker 1: I think those are the two things that we are 66 00:03:41,600 --> 00:03:44,280 Speaker 1: uh trading off one against the other, and I think 67 00:03:44,440 --> 00:03:48,080 Speaker 1: are My view is that the margins are going to 68 00:03:48,160 --> 00:03:52,400 Speaker 1: become the more dominant topic of conversation. The idea of 69 00:03:52,440 --> 00:03:58,040 Speaker 1: transitory is a debate we will be having consistently until October. Right, 70 00:03:58,080 --> 00:03:59,880 Speaker 1: we'll put a stake in the ground and say that's 71 00:03:59,880 --> 00:04:02,760 Speaker 1: for six months, and so the Fed has indicated its view. 72 00:04:03,320 --> 00:04:06,080 Speaker 1: My colleagues at Golden Sacks Economics team also have a 73 00:04:06,160 --> 00:04:10,040 Speaker 1: view that the inflationary impulses a relatively transitory and then 74 00:04:10,080 --> 00:04:14,480 Speaker 1: we'll receed back towards the two core pc next year. 75 00:04:14,760 --> 00:04:16,919 Speaker 1: So that's sort of the issue. We're going to have 76 00:04:16,960 --> 00:04:19,960 Speaker 1: that repeatedly. I think the more interesting analytical debate with 77 00:04:20,000 --> 00:04:24,760 Speaker 1: portfolio managers is around the durability of margins and margins 78 00:04:24,920 --> 00:04:28,880 Speaker 1: Jonathan and Tom and Lisa have recovered now to their 79 00:04:28,920 --> 00:04:31,680 Speaker 1: pre pandemic levels, So they're already back to where they 80 00:04:31,680 --> 00:04:35,720 Speaker 1: were pre UH February of two thousand twenty. And so 81 00:04:36,080 --> 00:04:38,520 Speaker 1: question is from here where we're going, And my view 82 00:04:38,640 --> 00:04:41,360 Speaker 1: is margins are going to be relatively flat and a 83 00:04:41,440 --> 00:04:45,239 Speaker 1: big variable there is the tax rate, the corporate taxes. 84 00:04:45,400 --> 00:04:47,920 Speaker 1: If you told me for a moment we did not 85 00:04:48,560 --> 00:04:52,039 Speaker 1: we will not have UH corporate tax reform, then would 86 00:04:52,040 --> 00:04:56,760 Speaker 1: have earnest growth of around ten from this year into two. 87 00:04:57,080 --> 00:04:59,200 Speaker 1: Now that's not our view. We expect there's going to 88 00:04:59,279 --> 00:05:01,880 Speaker 1: be an increasing corporate taxes and that is going to 89 00:05:01,960 --> 00:05:05,479 Speaker 1: mean that growth in earnings is gonna be around five. 90 00:05:06,320 --> 00:05:09,480 Speaker 1: So they paid multiple for a five percent growth as 91 00:05:09,520 --> 00:05:12,400 Speaker 1: opposed to tempercent growth. David, this has been the story 92 00:05:12,480 --> 00:05:15,480 Speaker 1: that big tech can pass on pricing increases. Big tech 93 00:05:15,680 --> 00:05:18,600 Speaker 1: reign supreme again and again and again, and that is 94 00:05:18,640 --> 00:05:21,240 Speaker 1: why it is the top holding for so many companies, 95 00:05:21,440 --> 00:05:23,839 Speaker 1: for so many investors. At what point do you start 96 00:05:23,880 --> 00:05:28,240 Speaker 1: to worry about concentration risk yet again, as hedge funds 97 00:05:28,320 --> 00:05:32,279 Speaker 1: double down on say Facebook positions after already having large, 98 00:05:32,600 --> 00:05:36,080 Speaker 1: large positions outstanding, Well, it is interesting you mentioned UH 99 00:05:36,200 --> 00:05:39,839 Speaker 1: Facebook as it is the largest stock in our hedge 100 00:05:39,880 --> 00:05:43,000 Speaker 1: fund very important position to basket. We have on Bloomberg 101 00:05:43,040 --> 00:05:46,600 Speaker 1: been tracking this now for twenty years. Every ninety days 102 00:05:46,600 --> 00:05:49,479 Speaker 1: we're looking at around two point eight trillion dollars of 103 00:05:49,760 --> 00:05:52,839 Speaker 1: long and short exposure. And that's the most uh, sort 104 00:05:52,839 --> 00:05:57,080 Speaker 1: of most most important position. Uh. It's ap planted Amazon 105 00:05:57,160 --> 00:05:59,880 Speaker 1: that previously had that position. We just published that last week. 106 00:05:59,880 --> 00:06:02,640 Speaker 1: And so yes, it's a big topic of conversation just 107 00:06:02,839 --> 00:06:06,400 Speaker 1: how sort of dominant these can be now right now, Lisa, 108 00:06:06,680 --> 00:06:09,200 Speaker 1: these five stocks, the big five companies that we all 109 00:06:09,200 --> 00:06:15,280 Speaker 1: know are comprising around or so of the spquity cap. 110 00:06:15,680 --> 00:06:20,839 Speaker 1: But last September that was so the actual concentration is 111 00:06:20,880 --> 00:06:24,359 Speaker 1: diminished slightly. Uh. And perhaps more importantly is in the 112 00:06:24,440 --> 00:06:26,320 Speaker 1: growth index. If you look at to say, the Russell 113 00:06:26,480 --> 00:06:29,719 Speaker 1: one thousand growth index. This was a big issue for 114 00:06:30,200 --> 00:06:36,919 Speaker 1: diversified growth mutual funds where the passive index weight in 115 00:06:37,000 --> 00:06:40,320 Speaker 1: the Russell one thousand of the five largest companies put 116 00:06:40,400 --> 00:06:43,960 Speaker 1: a number of funds in excess or tripping if you will, 117 00:06:44,080 --> 00:06:48,080 Speaker 1: the diversification requirements of the sec that has suppressed and 118 00:06:48,120 --> 00:06:50,359 Speaker 1: that has come down a little bit. As these companies 119 00:06:50,400 --> 00:06:52,880 Speaker 1: as big and dominants, they are relative to the rest 120 00:06:52,880 --> 00:06:54,760 Speaker 1: of the market, they've receded a little bit in terms 121 00:06:54,760 --> 00:06:57,160 Speaker 1: of their concentration. So the question we think about and 122 00:06:57,200 --> 00:07:00,640 Speaker 1: the discussions with fund managers leases well, just how further 123 00:07:00,760 --> 00:07:03,279 Speaker 1: can they run? If you think what happened year every 124 00:07:03,360 --> 00:07:07,200 Speaker 1: year in revenue growth in the first quarter they were 125 00:07:07,279 --> 00:07:11,880 Speaker 1: up forty one percent compared to the rest of the 126 00:07:11,920 --> 00:07:15,120 Speaker 1: market where they were up modestly in terms of sales growth. 127 00:07:15,120 --> 00:07:17,600 Speaker 1: And so the idea in a and even think of 128 00:07:17,640 --> 00:07:19,880 Speaker 1: the worst part of the pandemic in the second quarter 129 00:07:19,960 --> 00:07:22,840 Speaker 1: last year, the worst part of the pandemic. Year every year, 130 00:07:23,040 --> 00:07:26,560 Speaker 1: these companies had eighteen percent revenue growth. Rest market was 131 00:07:26,840 --> 00:07:29,680 Speaker 1: around seven. And so we're looking forward to ask ourselves, well, 132 00:07:29,760 --> 00:07:32,400 Speaker 1: these companies are pre durable in terms of their growth. 133 00:07:32,600 --> 00:07:36,040 Speaker 1: They're expected in terms of revenue growth three times faster 134 00:07:36,080 --> 00:07:38,120 Speaker 1: than the rest of the market. In terms of top 135 00:07:38,160 --> 00:07:42,680 Speaker 1: line sales. They trade at basically about five multiple points higher, 136 00:07:43,160 --> 00:07:47,160 Speaker 1: uh multiple than the market markets like one times right now, 137 00:07:47,600 --> 00:07:50,680 Speaker 1: uh these are six times. So they're trading at a 138 00:07:51,360 --> 00:07:55,040 Speaker 1: premium valuation, no question about that. But they're also offering 139 00:07:55,080 --> 00:07:57,520 Speaker 1: both growth. David, in the time we've got left, I've 140 00:07:57,520 --> 00:07:58,880 Speaker 1: got any ways to go here and I do want 141 00:07:58,880 --> 00:08:01,520 Speaker 1: to congratulate your team on their Amazon research of a 142 00:08:01,520 --> 00:08:03,480 Speaker 1: couple of weeks ago. I thought it was great how 143 00:08:03,520 --> 00:08:05,840 Speaker 1: you went to cash flow. There's a lot of people 144 00:08:05,840 --> 00:08:09,160 Speaker 1: out there cautious short term or a constant long term view, 145 00:08:09,640 --> 00:08:12,200 Speaker 1: and one of them is Douglas Cass. Doug Cass is 146 00:08:12,240 --> 00:08:15,000 Speaker 1: cautious right now, and Doug Cass is saying, I don't 147 00:08:15,040 --> 00:08:18,360 Speaker 1: care what constant thinks about the bull market. There's no 148 00:08:18,680 --> 00:08:22,720 Speaker 1: volume out there. How does volume play into your view 149 00:08:23,120 --> 00:08:26,560 Speaker 1: of the equity markets? Well, when I think about it 150 00:08:26,600 --> 00:08:29,760 Speaker 1: in terms of liquidity, in terms of low versus high 151 00:08:29,840 --> 00:08:33,679 Speaker 1: liquidity stocks and groups of companies that have more or 152 00:08:33,760 --> 00:08:36,840 Speaker 1: less liquid from a from a trading perspective, and the 153 00:08:36,880 --> 00:08:40,720 Speaker 1: markets actually awarded companies that have relatively lower liquidity. And 154 00:08:40,760 --> 00:08:43,920 Speaker 1: that's just a factual statement in terms of the performance. Uh. 155 00:08:43,960 --> 00:08:45,880 Speaker 1: You know Doug. I know Doug. I haven't talked to 156 00:08:45,960 --> 00:08:48,000 Speaker 1: him in a while, but he's generally more on the 157 00:08:48,040 --> 00:08:50,640 Speaker 1: bare side and the short side. So it wouldn't be 158 00:08:50,679 --> 00:08:53,240 Speaker 1: surprised you have a more more cautious take on the 159 00:08:53,320 --> 00:08:55,960 Speaker 1: on the world. To be fair, the market right now 160 00:08:56,000 --> 00:08:58,599 Speaker 1: in SMP has four thousand, two hundred Our target for 161 00:08:58,640 --> 00:09:00,880 Speaker 1: the end of the year is around fourth and three hundred, 162 00:09:01,040 --> 00:09:04,640 Speaker 1: so pretty modest upside to be very clear, and that 163 00:09:04,920 --> 00:09:08,840 Speaker 1: is likely to be shifting from more cyclicals, which has 164 00:09:08,880 --> 00:09:11,760 Speaker 1: done really really well so far, towards more of the growth. 165 00:09:11,800 --> 00:09:15,360 Speaker 1: And the idea behind this intuition Tom is the economy 166 00:09:15,480 --> 00:09:18,199 Speaker 1: is peaking this quarter in terms of growth rate like 167 00:09:18,320 --> 00:09:21,520 Speaker 1: ten percent, and that's gonna decelerate, still grow, but at 168 00:09:21,520 --> 00:09:24,679 Speaker 1: a slowing pace, and that's where the transition and handoff 169 00:09:24,720 --> 00:09:27,319 Speaker 1: to some of the companies that are positioned to grow 170 00:09:27,880 --> 00:09:30,560 Speaker 1: at a more extended level. And the intuition behind that 171 00:09:31,120 --> 00:09:34,199 Speaker 1: is the companies that are investing in their business and 172 00:09:34,240 --> 00:09:37,880 Speaker 1: that is what makes some companies differentiated from others. The 173 00:09:37,920 --> 00:09:41,880 Speaker 1: techical company invests eleven percent of its cash FUF from 174 00:09:41,920 --> 00:09:45,040 Speaker 1: operations to grow its business. And there's a portfolio of companies, 175 00:09:45,040 --> 00:09:48,360 Speaker 1: whether it's seventy and so it's big companies that we 176 00:09:48,480 --> 00:09:51,880 Speaker 1: talked about earlier around so it's an enormous amount of 177 00:09:51,880 --> 00:09:55,600 Speaker 1: investment to grow into two and make no mistake about it, 178 00:09:55,679 --> 00:09:58,320 Speaker 1: all of the conversations with fund managers are about the 179 00:09:58,360 --> 00:10:02,200 Speaker 1: growth prospects in to right. David love catching up with 180 00:10:03,800 --> 00:10:09,199 Speaker 1: because David, We're excited to have around this table at 181 00:10:09,240 --> 00:10:11,839 Speaker 1: one point in the future, maybe in the next time. 182 00:10:12,120 --> 00:10:14,720 Speaker 1: Lean over, Oh, Lisa, Lisa, could you plass me the 183 00:10:14,760 --> 00:10:23,240 Speaker 1: tank please? Right now, Let's go to Marvin Lowe. He 184 00:10:23,280 --> 00:10:26,120 Speaker 1: has the State Street and their senior global macro strategists 185 00:10:26,320 --> 00:10:30,800 Speaker 1: always writing really cogent notes linking FED policy into the markets. Marvin, 186 00:10:30,880 --> 00:10:33,160 Speaker 1: I want to go from Mr Gorman and Morgan Stanley 187 00:10:33,240 --> 00:10:36,760 Speaker 1: gaming out two thousand twenty two to the chairman with 188 00:10:36,880 --> 00:10:40,040 Speaker 1: a way to the world on his shoulders to what 189 00:10:40,280 --> 00:10:42,960 Speaker 1: it means for the equity market. I want you to 190 00:10:43,000 --> 00:10:46,320 Speaker 1: explain to our radio and TV audience what this FED 191 00:10:46,440 --> 00:10:51,840 Speaker 1: babel means for stocks. You know what. It's as simple 192 00:10:51,960 --> 00:10:57,400 Speaker 1: as how much liquidity and how ultimately dumbased the FED 193 00:10:57,480 --> 00:11:01,439 Speaker 1: makes it for the market. UM with negative really guilds, 194 00:11:01,600 --> 00:11:04,800 Speaker 1: you've got to you've got a repressive financial system, and 195 00:11:04,920 --> 00:11:08,040 Speaker 1: equities benefit from the fact that there aren't that many alternatives. 196 00:11:08,080 --> 00:11:10,920 Speaker 1: If you're buying UM a church of security at this point, 197 00:11:10,960 --> 00:11:13,679 Speaker 1: you're buying into the view that you're going to lose 198 00:11:13,720 --> 00:11:17,240 Speaker 1: money after inflation. Ultimately, UM in terms of how you 199 00:11:17,400 --> 00:11:20,560 Speaker 1: part the FED, in terms of whether or not they're 200 00:11:20,600 --> 00:11:23,480 Speaker 1: correct that inflation will be trenditory. Is the key that 201 00:11:23,520 --> 00:11:25,199 Speaker 1: all of us are asking right now? Yeah, I think 202 00:11:25,200 --> 00:11:27,680 Speaker 1: this is so important, Johnny for a radio audience, we've 203 00:11:27,720 --> 00:11:29,839 Speaker 1: really got a state that we go from Gorman to 204 00:11:29,960 --> 00:11:33,800 Speaker 1: Powell and then the jargon is dj I and john 205 00:11:33,840 --> 00:11:36,439 Speaker 1: I did that for you. That's the Jones. Thank you. 206 00:11:36,520 --> 00:11:40,160 Speaker 1: Industrial Marvin. When you responded to that question, you weren't 207 00:11:40,160 --> 00:11:43,120 Speaker 1: talking about a shift in the FET's reaction function. You 208 00:11:43,160 --> 00:11:45,920 Speaker 1: were talking about the data may become again hotter than 209 00:11:45,960 --> 00:11:48,480 Speaker 1: they anticipate. Do you think that's the lower bar here 210 00:11:48,520 --> 00:11:51,400 Speaker 1: to disagree with their forecast, to say that actually it 211 00:11:51,400 --> 00:11:53,000 Speaker 1: will look a little different in the future to the 212 00:11:53,000 --> 00:11:56,520 Speaker 1: way they anticipate. Yeah, I mean, I think I think 213 00:11:56,559 --> 00:11:59,480 Speaker 1: the real challenge is that the FETE is giving us 214 00:11:59,480 --> 00:12:02,439 Speaker 1: a message that um it has it hasn't believed in 215 00:12:02,480 --> 00:12:05,560 Speaker 1: the forecast in the past. That's why they become outcomes based. 216 00:12:05,760 --> 00:12:09,760 Speaker 1: But everything is based on their view, UM that data 217 00:12:09,840 --> 00:12:13,400 Speaker 1: is going to be transitory. So from one instance, believe 218 00:12:13,480 --> 00:12:15,880 Speaker 1: us that you know, the numbers are are going to 219 00:12:16,000 --> 00:12:19,360 Speaker 1: get back to normal into something that is um much 220 00:12:19,400 --> 00:12:21,920 Speaker 1: more familiar to what we've seen before. But at the 221 00:12:21,920 --> 00:12:24,360 Speaker 1: other side, we don't necessarily believe what we've seen in 222 00:12:24,360 --> 00:12:27,600 Speaker 1: the past is accurate. Um. The risk is that the 223 00:12:27,679 --> 00:12:30,439 Speaker 1: risk is that not only the data comes in hotter 224 00:12:30,640 --> 00:12:33,200 Speaker 1: remains hotter. I think is kind of the important part 225 00:12:33,200 --> 00:12:36,679 Speaker 1: of it. UM. And the FED is so far behind 226 00:12:36,840 --> 00:12:39,440 Speaker 1: the curve UM that it's hard for them to catch up. Um. 227 00:12:39,520 --> 00:12:42,440 Speaker 1: You know, not not necessarily saying an eighties type of 228 00:12:42,600 --> 00:12:45,840 Speaker 1: environment again, UM, but we're talking massive balance sheets with 229 00:12:45,920 --> 00:12:48,599 Speaker 1: the potential for for slip ups. Shure, absolutely, Mom. And 230 00:12:48,640 --> 00:12:50,520 Speaker 1: do you think in one way that contradicted themselves when 231 00:12:50,520 --> 00:12:52,679 Speaker 1: they say we're an outcome based federal serve, but also 232 00:12:52,800 --> 00:12:54,720 Speaker 1: we will give you a long enough late time to 233 00:12:54,800 --> 00:12:57,200 Speaker 1: know when we're thinking about talking about talking about whatever 234 00:12:57,480 --> 00:13:00,599 Speaker 1: when it comes to type rink. Yeah, yeah, absolutely. And 235 00:13:00,960 --> 00:13:02,800 Speaker 1: I think and I think what we saw earlier this 236 00:13:02,880 --> 00:13:05,520 Speaker 1: year in terms of yields, in terms of real yield 237 00:13:05,800 --> 00:13:09,240 Speaker 1: UM kind of coming off the bottom feel being less 238 00:13:09,280 --> 00:13:12,480 Speaker 1: negative fuel UM is an example that the market is 239 00:13:12,520 --> 00:13:15,720 Speaker 1: not necessarily a hundred and comfortable with the Fed's ability 240 00:13:16,120 --> 00:13:18,839 Speaker 1: to do everything that it says. UM. Having said that, 241 00:13:18,960 --> 00:13:21,840 Speaker 1: to push against the FED UM where it does have 242 00:13:21,920 --> 00:13:24,440 Speaker 1: covered to remain where it is now, is something that 243 00:13:24,520 --> 00:13:26,839 Speaker 1: kind of keeps us in the range even though we've 244 00:13:26,880 --> 00:13:29,840 Speaker 1: had data on really both sides in terms of surprise 245 00:13:29,880 --> 00:13:32,360 Speaker 1: to the upside and downside. Marvin, where's the bigger risk 246 00:13:32,440 --> 00:13:34,840 Speaker 1: right now that yields go up or that yields go 247 00:13:34,920 --> 00:13:38,839 Speaker 1: materially lower. I think it's materially lower, to be honest 248 00:13:38,840 --> 00:13:43,160 Speaker 1: with you, because to get materially materially lower, you've got 249 00:13:43,200 --> 00:13:47,200 Speaker 1: to really um abandon the growth that we expect to 250 00:13:47,240 --> 00:13:50,120 Speaker 1: have not only from reopening, but from the fact that 251 00:13:50,160 --> 00:13:52,679 Speaker 1: we've got as much savings as we have and we're 252 00:13:53,480 --> 00:13:56,040 Speaker 1: predicting above trend for at least the next year year 253 00:13:56,080 --> 00:13:58,320 Speaker 1: and a half or so. If that's the case, and 254 00:13:58,360 --> 00:14:00,600 Speaker 1: a lot of people would agree with you, that isn't 255 00:14:00,600 --> 00:14:03,040 Speaker 1: the FED doing exactly what people would hope the FED 256 00:14:03,200 --> 00:14:05,600 Speaker 1: would do. I mean other words, run the economy as 257 00:14:05,640 --> 00:14:08,680 Speaker 1: hot as possible, because the downside risk to the economy, 258 00:14:08,720 --> 00:14:11,719 Speaker 1: the downside risk to yield, is way worse and more 259 00:14:11,720 --> 00:14:15,840 Speaker 1: difficult for them to combat than the alternative. Yeah. Absolutely, 260 00:14:15,880 --> 00:14:18,360 Speaker 1: and I think that's why risk assids remained um as 261 00:14:18,400 --> 00:14:21,040 Speaker 1: supported as supportive as they have been over the course 262 00:14:21,040 --> 00:14:24,120 Speaker 1: of the last couple of months. Despite you know whether 263 00:14:24,200 --> 00:14:29,280 Speaker 1: it's of medical virus volatility and or inflation volatility, kind 264 00:14:29,280 --> 00:14:32,600 Speaker 1: of making twins in the market, Marvin, So much of 265 00:14:32,640 --> 00:14:34,920 Speaker 1: the exercise right now, and I take this at a 266 00:14:35,040 --> 00:14:38,480 Speaker 1: macro level, is all this news slow coming out of 267 00:14:38,520 --> 00:14:43,880 Speaker 1: an original natural disaster into something original a boom economy. 268 00:14:43,920 --> 00:14:47,760 Speaker 1: We haven't seen this in forty seven. What should our 269 00:14:47,800 --> 00:14:52,680 Speaker 1: listeners and viewers do given a boom economy? How do 270 00:14:52,800 --> 00:14:58,200 Speaker 1: they allocate given the macro flow of news? Well, um, 271 00:14:58,240 --> 00:15:01,880 Speaker 1: you know, and I think and I um rates and 272 00:15:01,920 --> 00:15:04,520 Speaker 1: the FED is the backdrop around that. So so long 273 00:15:04,520 --> 00:15:07,040 Speaker 1: as we've got these negative yields in a booming economy, 274 00:15:07,360 --> 00:15:10,720 Speaker 1: it's really supportive for risk assets. It's really supportive for 275 00:15:10,800 --> 00:15:13,640 Speaker 1: taking that equity risk. And I think that becomes part 276 00:15:13,640 --> 00:15:16,640 Speaker 1: of the asset allocation discussion. Um. And then and then 277 00:15:16,680 --> 00:15:18,560 Speaker 1: we start to pars things that this has been a 278 00:15:18,600 --> 00:15:21,680 Speaker 1: market where we're looking for those that might benefit more 279 00:15:21,720 --> 00:15:24,920 Speaker 1: than others. Yeah, John from Coventry says, go Matthew, right now, 280 00:15:25,000 --> 00:15:27,600 Speaker 1: let's go Matthew Marvin. When you see the real yield 281 00:15:27,640 --> 00:15:31,280 Speaker 1: come up from a substantial negative level towards zero as 282 00:15:31,320 --> 00:15:34,480 Speaker 1: it did in Switzerland, because they're seeing German tenure. Is 283 00:15:34,560 --> 00:15:37,440 Speaker 1: that a linear flow or is John's using this phrase 284 00:15:37,520 --> 00:15:42,600 Speaker 1: reaction function? Is that a linear or quadratic movement? I 285 00:15:42,600 --> 00:15:45,080 Speaker 1: think I think that the market should be able to 286 00:15:45,240 --> 00:15:49,440 Speaker 1: handle zero percent really yields UM. You shouldn't need a 287 00:15:49,480 --> 00:15:53,320 Speaker 1: repressive financial system for companies to do well. There is 288 00:15:53,360 --> 00:15:56,000 Speaker 1: a level with within kind of that really yield discussion 289 00:15:56,000 --> 00:15:59,280 Speaker 1: when it becomes much more positive than zero that UM 290 00:15:59,320 --> 00:16:02,520 Speaker 1: you wind up with alternatives UM and the risk reward 291 00:16:02,920 --> 00:16:05,560 Speaker 1: amongst different asset classes are coming to play. But a 292 00:16:05,720 --> 00:16:08,440 Speaker 1: zero really yield, which is at this point from a 293 00:16:08,520 --> 00:16:12,000 Speaker 1: tenure perspective, still eighty basis points away, shouldn't be enough 294 00:16:12,040 --> 00:16:16,840 Speaker 1: to derail how companies are able to still perform well 295 00:16:17,080 --> 00:16:20,080 Speaker 1: UM in an environment where you've got positive growth, mom, 296 00:16:20,080 --> 00:16:24,040 Speaker 1: And do you think Europe can handle zero row yots? Yeah, 297 00:16:24,080 --> 00:16:28,640 Speaker 1: that's that's certainly a much different type of UM equation. 298 00:16:29,160 --> 00:16:31,720 Speaker 1: You know, their demographics are different, UM. Certainly the amount 299 00:16:31,720 --> 00:16:34,400 Speaker 1: of fiscal stimulus that they have is different. It's going 300 00:16:34,440 --> 00:16:36,240 Speaker 1: to be it's going to be harder. And I think 301 00:16:36,280 --> 00:16:40,400 Speaker 1: that's the conundrum that ECB has UM as they try 302 00:16:40,480 --> 00:16:44,960 Speaker 1: to sound as dubbish as they can, but ultimately you know, 303 00:16:45,160 --> 00:16:48,120 Speaker 1: is moving along the same normalization path without as much 304 00:16:48,160 --> 00:16:52,040 Speaker 1: of a without much much of a growth response that 305 00:16:52,040 --> 00:16:54,200 Speaker 1: that we're seeing here. Ultimately the mom and isn't then 306 00:16:54,240 --> 00:16:57,360 Speaker 1: the tension the issue hit the the U S treasury 307 00:16:57,400 --> 00:16:59,960 Speaker 1: market can't trite and a vacuum that it's the global 308 00:17:00,040 --> 00:17:01,840 Speaker 1: on market and then you've got to move towards zero 309 00:17:01,920 --> 00:17:04,040 Speaker 1: real yield. It's on a ten year treasury. Can you 310 00:17:04,080 --> 00:17:07,480 Speaker 1: imagine what it looks like cover in Europe? It's it's 311 00:17:07,520 --> 00:17:10,560 Speaker 1: the conundrum of the ECB Um. You know, it's still 312 00:17:10,600 --> 00:17:13,520 Speaker 1: a lot of different economies with a lot of different speeds, 313 00:17:13,560 --> 00:17:16,639 Speaker 1: and you've got one organization trying to keep it all 314 00:17:16,680 --> 00:17:19,360 Speaker 1: together with one number. Whereas you know, certainly for us 315 00:17:19,440 --> 00:17:21,879 Speaker 1: with the dollar um and a more cohesive economy, it's 316 00:17:21,920 --> 00:17:24,200 Speaker 1: it's much easier. Good luck, Jane tent and the next 317 00:17:24,280 --> 00:17:28,760 Speaker 1: day see may sink. Yes, yes, absolutely, Um. You know 318 00:17:28,800 --> 00:17:30,439 Speaker 1: the focus is going to be on what they what 319 00:17:30,480 --> 00:17:32,960 Speaker 1: they do with PEP. It's going to be um. You know, 320 00:17:33,000 --> 00:17:34,879 Speaker 1: everyone certainly is looking at the size of the balance 321 00:17:34,880 --> 00:17:37,679 Speaker 1: sheets and that being the first stage of normalization. The 322 00:17:37,800 --> 00:17:42,040 Speaker 1: envelope themselves, the envelope structure itself leads itself to a 323 00:17:42,119 --> 00:17:45,239 Speaker 1: natural tapering process unless we hear differently. So um, it's 324 00:17:45,240 --> 00:17:47,400 Speaker 1: an important meeting in the middle of summer. Absolutely, Mom 325 00:17:47,400 --> 00:17:49,119 Speaker 1: and gonna catch up as always, Mom and love that 326 00:17:49,240 --> 00:17:59,040 Speaker 1: given straight the global Macrost strategical they've tweeted up to 327 00:17:59,359 --> 00:18:02,639 Speaker 1: eleven times this morning. No, it's not President Trump of 328 00:18:03,320 --> 00:18:07,119 Speaker 1: a few months and quarters ago. It is Lizanne Saunders 329 00:18:07,160 --> 00:18:09,679 Speaker 1: piece of advice. Folks, if you haven't signed up for Twitter, 330 00:18:10,240 --> 00:18:14,080 Speaker 1: your single reason is the early morning chart set up 331 00:18:14,160 --> 00:18:17,240 Speaker 1: of liz Ane Saunders l I Z A N N 332 00:18:17,520 --> 00:18:21,359 Speaker 1: S O N D E R S. And the biggest problem, Paul, 333 00:18:21,600 --> 00:18:26,639 Speaker 1: is not one single tweet is average. That's smart. Smart. 334 00:18:26,760 --> 00:18:31,080 Speaker 1: Do you do this yourself or your kids helping? You know? Well, 335 00:18:31,280 --> 00:18:35,000 Speaker 1: not not my kids. But I have an incredible UM 336 00:18:35,240 --> 00:18:39,600 Speaker 1: research associate, Kevin Gordon, who's uh two years out of 337 00:18:39,640 --> 00:18:42,919 Speaker 1: college and joined the two years ago, and he puts 338 00:18:42,960 --> 00:18:46,119 Speaker 1: a lot of the charts together. Rich Kevin Gordon g 339 00:18:46,440 --> 00:18:51,160 Speaker 1: O R to be sure, And by the way, thank 340 00:18:51,160 --> 00:18:53,560 Speaker 1: you for selling my Twitter handle because I have had 341 00:18:53,560 --> 00:18:57,640 Speaker 1: a rash of the posters. YEA, well, I can understand 342 00:18:57,640 --> 00:18:59,560 Speaker 1: with your claim over the years. Listen, I'm gonna go 343 00:18:59,600 --> 00:19:03,600 Speaker 1: to your right, which shows under performance by tech and 344 00:19:03,720 --> 00:19:08,760 Speaker 1: consumer discretionary. We're talking big tech under performing others. David 345 00:19:08,800 --> 00:19:12,080 Speaker 1: Costan says, a renaissance occurs is a thing is going 346 00:19:12,160 --> 00:19:16,040 Speaker 1: to have a good Q three. So I think we're 347 00:19:16,119 --> 00:19:19,320 Speaker 1: we're already seeing a bit of movement back into some 348 00:19:19,440 --> 00:19:24,320 Speaker 1: of those what were oddly the defensive areas of the market. 349 00:19:24,520 --> 00:19:27,680 Speaker 1: Last year. You know, big tech in the Big five 350 00:19:27,880 --> 00:19:31,640 Speaker 1: became the covid eras defense because it was pretty much 351 00:19:31,680 --> 00:19:36,840 Speaker 1: the only ecosystem that was operational and helpful in that environment. 352 00:19:36,920 --> 00:19:39,719 Speaker 1: And I think given what's happened with the tenure yield 353 00:19:40,640 --> 00:19:44,320 Speaker 1: stalling a bit here, uh, economic growth a bit weaker. 354 00:19:45,240 --> 00:19:49,280 Speaker 1: I think the view that maybe inflation actually is transitory, 355 00:19:49,320 --> 00:19:52,439 Speaker 1: I think you've got a bid back toward the growth 356 00:19:52,480 --> 00:19:54,840 Speaker 1: side of the equation. I think it's still be choppy. 357 00:19:54,880 --> 00:19:57,639 Speaker 1: I think we'll see kind of value in growth factors 358 00:19:58,280 --> 00:20:02,280 Speaker 1: volleyball a bit much like we'll the consumer discretionary and 359 00:20:02,359 --> 00:20:05,080 Speaker 1: tech on one end of the spectrum, energy and financials 360 00:20:05,080 --> 00:20:06,919 Speaker 1: on the other end. And that's been the name of 361 00:20:06,920 --> 00:20:09,400 Speaker 1: the game for quite a few months now. But growth 362 00:20:09,680 --> 00:20:12,199 Speaker 1: factors are finding a bit of a bit. Yeah, so 363 00:20:12,200 --> 00:20:14,119 Speaker 1: we've noticed the town. I were just discussing that. The 364 00:20:14,280 --> 00:20:16,560 Speaker 1: Over the last couple of days, the inflation talk is 365 00:20:16,640 --> 00:20:19,280 Speaker 1: kind of quieted down a little bit. What is your view, 366 00:20:19,320 --> 00:20:22,159 Speaker 1: Lasann about kind of where we are with inflation. I mean, 367 00:20:22,200 --> 00:20:24,880 Speaker 1: the Fed obviously has had a very consistent message about 368 00:20:24,920 --> 00:20:28,199 Speaker 1: it being transitory. What are your thoughts, Well, look up 369 00:20:28,200 --> 00:20:32,560 Speaker 1: transitory and the Oxford Dictionary. It's not permanent. With that 370 00:20:32,600 --> 00:20:38,760 Speaker 1: basic definition, you could you could find that you could 371 00:20:38,800 --> 00:20:42,040 Speaker 1: call the seventies there of of inflation transitory based on 372 00:20:42,160 --> 00:20:44,879 Speaker 1: that fairly simple definition. So I suppose it's all a 373 00:20:44,920 --> 00:20:47,320 Speaker 1: function of how long you define that. We know the 374 00:20:47,320 --> 00:20:50,080 Speaker 1: base effects will say it as early as June, we're 375 00:20:50,160 --> 00:20:54,320 Speaker 1: seeing some of the supply disruption start to ease a 376 00:20:54,400 --> 00:20:58,400 Speaker 1: little bit. We some of the speculative froth has come 377 00:20:58,520 --> 00:21:02,359 Speaker 1: a bit out of a certain segments of the commodities market. 378 00:21:02,920 --> 00:21:05,480 Speaker 1: There are longer term issues. I think the problems and 379 00:21:05,560 --> 00:21:10,680 Speaker 1: semiconductors probably don't get solved imminently. And then it's a 380 00:21:10,800 --> 00:21:16,080 Speaker 1: question of the psychology of inflation that doesn't get enough attention. Uh. 381 00:21:16,280 --> 00:21:19,040 Speaker 1: It ends up this when it turns into a spiral. 382 00:21:19,280 --> 00:21:22,000 Speaker 1: It has a lot to do with psychology. The psychology 383 00:21:22,000 --> 00:21:26,119 Speaker 1: of workers demanding higher wages, the psychology of companies deciding 384 00:21:26,160 --> 00:21:30,960 Speaker 1: to try to pass those on consumers in turn um 385 00:21:30,960 --> 00:21:34,159 Speaker 1: feeding that into wages, so that spiral comes not just 386 00:21:34,400 --> 00:21:38,520 Speaker 1: based on the math, but also based on psychology. So 387 00:21:38,760 --> 00:21:41,840 Speaker 1: I think watching labor market indicators and then trying to 388 00:21:42,280 --> 00:21:45,840 Speaker 1: uh to gauge that psychology will be key to whether 389 00:21:45,880 --> 00:21:48,280 Speaker 1: this truly is just a short term phenomenon that set 390 00:21:48,320 --> 00:21:50,800 Speaker 1: to fade imminently. I think the pay attention to the 391 00:21:50,800 --> 00:21:54,400 Speaker 1: bondo market. I think the bondo market is a more 392 00:21:54,600 --> 00:21:59,480 Speaker 1: rational um viewer of what goes on in the economy 393 00:21:59,600 --> 00:22:02,280 Speaker 1: than at times the stock market is. So I think 394 00:22:02,359 --> 00:22:05,560 Speaker 1: the stalling and the tenure yield may be indicative of 395 00:22:05,640 --> 00:22:08,800 Speaker 1: inflation problem that is not quite as dire as some 396 00:22:08,960 --> 00:22:13,800 Speaker 1: equity market watchers might suggest. So lazy, and that labor 397 00:22:13,840 --> 00:22:16,399 Speaker 1: market point is I think really telling here if we 398 00:22:16,520 --> 00:22:18,320 Speaker 1: you know, you really have to have wage inflation have 399 00:22:18,359 --> 00:22:21,160 Speaker 1: any meaningful inflation in this economy. So when you see 400 00:22:21,240 --> 00:22:24,119 Speaker 1: the McDonald's of the world raising their minimum wage to 401 00:22:24,240 --> 00:22:28,160 Speaker 1: thirteen and Amazon to fifteen, is that just anecdotal points 402 00:22:28,320 --> 00:22:31,159 Speaker 1: or do you think there really is something to that 403 00:22:31,160 --> 00:22:34,280 Speaker 1: wage inflation story that we need to keep an eye on, well, 404 00:22:34,320 --> 00:22:37,040 Speaker 1: it's more than just anecdotal, but I don't think it's 405 00:22:37,160 --> 00:22:42,760 Speaker 1: yet a sign of significant and sustainable upward pressure. I 406 00:22:42,920 --> 00:22:45,600 Speaker 1: can do what was part of the equation back in 407 00:22:45,680 --> 00:22:49,920 Speaker 1: the the nineteen seventies, because if you look more broadly 408 00:22:49,960 --> 00:22:52,480 Speaker 1: other than those one off and they're big companies, and 409 00:22:52,520 --> 00:22:56,160 Speaker 1: I think that it's important that they're boosting wages more broadly, 410 00:22:56,280 --> 00:23:00,359 Speaker 1: more industries are whether you look at indeed on Monster 411 00:23:00,560 --> 00:23:05,560 Speaker 1: postings are actually sub two thousand and nineteen levels. I 412 00:23:05,600 --> 00:23:10,920 Speaker 1: also think we have to look at myriad wage data metrics. 413 00:23:11,280 --> 00:23:14,159 Speaker 1: I'd say put at the bottom of your list average 414 00:23:14,160 --> 00:23:18,080 Speaker 1: hourly earnings because of the mixed shift issue that came 415 00:23:18,119 --> 00:23:20,760 Speaker 1: into play last year. In April last year, average howlely 416 00:23:20,800 --> 00:23:23,840 Speaker 1: earnings were up a point to in a month where 417 00:23:23,880 --> 00:23:26,359 Speaker 1: we lost twenty million jobs. That was simply because the 418 00:23:26,440 --> 00:23:29,760 Speaker 1: jobs lost skewed towards the lower and the wage spectrum, 419 00:23:29,760 --> 00:23:32,320 Speaker 1: which boosted the average. The exact opposite is happening now, 420 00:23:32,400 --> 00:23:36,200 Speaker 1: so unit labor costs, employment cost index of those would 421 00:23:36,200 --> 00:23:40,680 Speaker 1: be the metrics. Atlanta FED has immediate measure called wage Tracker, 422 00:23:40,880 --> 00:23:43,680 Speaker 1: so those would be the labor market metrics I would 423 00:23:43,720 --> 00:23:47,320 Speaker 1: focus on, and then they're still all generally fairly tamed. Listen, 424 00:23:48,080 --> 00:23:50,800 Speaker 1: profit is so in people will say, well, I only 425 00:23:50,840 --> 00:23:53,960 Speaker 1: want to invest in companies that are profitable. How do 426 00:23:54,000 --> 00:23:57,560 Speaker 1: you define? How do you study the profit of an 427 00:23:57,640 --> 00:24:00,480 Speaker 1: individual company? For that matter? Is sec here? I mean? 428 00:24:01,119 --> 00:24:02,840 Speaker 1: Do you do? You do you do Graham doubt and 429 00:24:02,880 --> 00:24:04,720 Speaker 1: coddle and go down to net income or do you 430 00:24:04,760 --> 00:24:07,440 Speaker 1: go up the income statement? Or well, beautifully for me, 431 00:24:07,720 --> 00:24:10,439 Speaker 1: I don't have to do that anymore. I I know, 432 00:24:10,560 --> 00:24:12,240 Speaker 1: I know you don't do it. But what what what 433 00:24:12,400 --> 00:24:16,680 Speaker 1: Saunders one oh one? And how you measure profit? Well? 434 00:24:16,720 --> 00:24:19,880 Speaker 1: I think certainly in this environment you have to do 435 00:24:20,040 --> 00:24:24,760 Speaker 1: some normalization. Um. I like the methodology that I saw 436 00:24:24,920 --> 00:24:31,679 Speaker 1: first pioneered by Steve Luthold, which is five year normalized earnings, 437 00:24:31,720 --> 00:24:36,360 Speaker 1: and it's it's actually a couple of interesting combos in there. 438 00:24:36,359 --> 00:24:38,880 Speaker 1: It's it's four and a half years of a historic earnings, 439 00:24:39,000 --> 00:24:43,320 Speaker 1: not as far back as Schiller, but reasonable. You can 440 00:24:43,400 --> 00:24:46,280 Speaker 1: skip over some of the extremes, like a COVID situation 441 00:24:46,840 --> 00:24:49,439 Speaker 1: two quarters of forward earnings, so you get a little 442 00:24:49,440 --> 00:24:52,639 Speaker 1: bit of that embedded forward and then takes the midpoint 443 00:24:52,720 --> 00:24:57,320 Speaker 1: between operating earnings and reported earnings, and I have found 444 00:24:57,400 --> 00:25:01,840 Speaker 1: that that's a pretty smooth way of looking at earnings, 445 00:25:01,840 --> 00:25:05,360 Speaker 1: that that blends that necessity of looking at what they've 446 00:25:05,400 --> 00:25:08,960 Speaker 1: actually earned, Understanding the market tends to be forward looking, 447 00:25:09,560 --> 00:25:13,840 Speaker 1: also understanding, especially in extreme environments, that the spread between 448 00:25:13,840 --> 00:25:17,639 Speaker 1: reported and operating can be significant. And that's about the 449 00:25:17,720 --> 00:25:21,600 Speaker 1: cleanest way I've seen to analyze the overall market an 450 00:25:21,600 --> 00:25:25,679 Speaker 1: individual company or a broad sector. Lissene Saunders on Twitter 451 00:25:25,840 --> 00:25:29,639 Speaker 1: at l I z A n N S O N 452 00:25:29,800 --> 00:25:32,360 Speaker 1: d E r S. I think I got the spelling right. 453 00:25:33,680 --> 00:25:36,840 Speaker 1: Twelve thirteen charts every morning really quickly. She's a small firm. 454 00:25:36,920 --> 00:25:48,560 Speaker 1: Charles Schwab is their chief investment strategists. It's now time 455 00:25:48,600 --> 00:25:51,240 Speaker 1: to frame the FED. We can do that with Julia 456 00:25:51,280 --> 00:25:55,800 Speaker 1: Corneto macro policy perspectives, a president and founder. Julia, the 457 00:25:55,920 --> 00:25:59,840 Speaker 1: equity market is voting, it has been up. Maybe it's 458 00:25:59,840 --> 00:26:02,919 Speaker 1: a raging rally, is Doug Cast calls it? How do 459 00:26:02,960 --> 00:26:07,800 Speaker 1: you use the stock market within your FED economics to FED? 460 00:26:08,040 --> 00:26:13,040 Speaker 1: The stock market rather is voting optimism right, right and share. 461 00:26:13,080 --> 00:26:17,000 Speaker 1: Powell is a financial conditions guy, so he does use 462 00:26:17,480 --> 00:26:21,719 Speaker 1: financial conditions broadly to calibrate how easy or how supportive 463 00:26:21,760 --> 00:26:25,040 Speaker 1: policy is. And right now the markets are saying, yes, 464 00:26:25,920 --> 00:26:28,639 Speaker 1: policy is supportive and it's gonna work, and it's going 465 00:26:28,720 --> 00:26:32,000 Speaker 1: to create a strong recovery. And I think that's exactly 466 00:26:32,000 --> 00:26:34,720 Speaker 1: where they wanted to be within the equation. Where do 467 00:26:34,760 --> 00:26:37,040 Speaker 1: you see that with an investment We don't talk enough 468 00:26:37,080 --> 00:26:40,800 Speaker 1: about it. It's a smaller number than consumption, but investment, well, 469 00:26:40,840 --> 00:26:44,160 Speaker 1: it's got a volatility. What is that volatility right now 470 00:26:44,440 --> 00:26:47,960 Speaker 1: into the end of the year. Well, we saw a 471 00:26:48,119 --> 00:26:52,400 Speaker 1: very strong investment recovery last year. In fact, investment ended 472 00:26:52,480 --> 00:26:56,080 Speaker 1: up stronger at a higher level than pre pandemic by 473 00:26:56,160 --> 00:26:58,720 Speaker 1: the end of the year. So UM, I think that's 474 00:26:58,760 --> 00:27:02,600 Speaker 1: that bode dwell for or gains in productivity this cycle, 475 00:27:03,160 --> 00:27:06,240 Speaker 1: and also for that optimism you talked about earlier. Companies 476 00:27:06,240 --> 00:27:10,320 Speaker 1: are putting capital to work. They obviously see prospects for 477 00:27:10,520 --> 00:27:13,320 Speaker 1: making money by doing so. So I think that that's 478 00:27:13,320 --> 00:27:16,200 Speaker 1: a very good signal. As you say, there is some volatility, 479 00:27:16,280 --> 00:27:18,720 Speaker 1: and it probably won't keep rising at the pace we 480 00:27:18,800 --> 00:27:21,679 Speaker 1: saw on the second half of last year, um, but 481 00:27:21,800 --> 00:27:24,240 Speaker 1: it does seem to be on a positive track. Judy, 482 00:27:24,280 --> 00:27:26,560 Speaker 1: how do you gauge productivity and how easy is it 483 00:27:26,600 --> 00:27:28,760 Speaker 1: to get a clean rate on what is happening in 484 00:27:28,800 --> 00:27:33,480 Speaker 1: this economy. It's really hard right now. I mean it's 485 00:27:33,480 --> 00:27:35,680 Speaker 1: gonna be hard for a while. Everything is going to 486 00:27:35,720 --> 00:27:40,199 Speaker 1: be extremely noisy this year. UH, with the reemployment of 487 00:27:40,240 --> 00:27:42,480 Speaker 1: a lot of people, with the shifting in the mix 488 00:27:42,560 --> 00:27:46,040 Speaker 1: of workers. UM, we've seen as we usually see a 489 00:27:46,160 --> 00:27:51,400 Speaker 1: strong productivity UH performance during a recession as companies struggle 490 00:27:51,480 --> 00:27:55,439 Speaker 1: to survive by squeezing every bit of efficiency out of 491 00:27:55,480 --> 00:27:59,040 Speaker 1: their operations that they can. UM. But I think, you know, 492 00:27:59,080 --> 00:28:00,720 Speaker 1: so it's gonna take a little bit of time to 493 00:28:00,760 --> 00:28:04,680 Speaker 1: see whether we settle at a higher trend in productivity 494 00:28:04,680 --> 00:28:07,480 Speaker 1: than we did last mile. Last like always saw pretty 495 00:28:07,520 --> 00:28:12,439 Speaker 1: disappointing performance throughout the recovery and expansion UH. And I 496 00:28:12,480 --> 00:28:14,600 Speaker 1: think that there is some thought that you know, the 497 00:28:14,640 --> 00:28:19,199 Speaker 1: pandemic accelerated business transformation. It brought forward a lot of 498 00:28:19,280 --> 00:28:24,240 Speaker 1: plans UH, and that could result in higher productivity. And 499 00:28:24,280 --> 00:28:27,040 Speaker 1: then the question is how do we balance that against 500 00:28:27,080 --> 00:28:31,840 Speaker 1: the frictions associated with dealing from Where does work from 501 00:28:31,880 --> 00:28:35,840 Speaker 1: home go from here? How do companies navigate and manage 502 00:28:35,880 --> 00:28:39,760 Speaker 1: their workforce with some employees wanting to stay remote and 503 00:28:39,800 --> 00:28:41,640 Speaker 1: others wanting to come back to the office. That's going 504 00:28:41,640 --> 00:28:43,840 Speaker 1: to be a management challenge. Judy, how do you think 505 00:28:43,880 --> 00:28:45,600 Speaker 1: about what's happening in DC and how you plug that 506 00:28:45,640 --> 00:28:49,760 Speaker 1: into your forecast your outlook for this economy. I think 507 00:28:49,800 --> 00:28:51,560 Speaker 1: a lot of what we're seeing right now is sort 508 00:28:51,600 --> 00:28:54,720 Speaker 1: of the political theater around the infrastructure bill. We're not 509 00:28:54,760 --> 00:28:57,120 Speaker 1: adjusting our forecast because we do think it's going to 510 00:28:57,200 --> 00:29:01,160 Speaker 1: get past. And the question really for us is how 511 00:29:01,200 --> 00:29:03,160 Speaker 1: big is it and how much of it is paid 512 00:29:03,160 --> 00:29:07,000 Speaker 1: for through higher taxes? Uh, and that still seems to 513 00:29:07,040 --> 00:29:09,479 Speaker 1: be in a state of flux. But overall, we do 514 00:29:09,640 --> 00:29:13,000 Speaker 1: think that the bulk of the infrastructure proposals goes through. 515 00:29:13,040 --> 00:29:16,360 Speaker 1: The question is just as a bipartisan or a party 516 00:29:16,400 --> 00:29:18,920 Speaker 1: line vote. Well, but Julia, there's a question of how 517 00:29:19,000 --> 00:29:22,800 Speaker 1: much this higher inflationary regime that people talk about hinges 518 00:29:23,080 --> 00:29:26,200 Speaker 1: on this presumption that you talk about the infrastructure will 519 00:29:26,200 --> 00:29:29,160 Speaker 1: get past something resembling where it is right now in 520 00:29:29,200 --> 00:29:32,920 Speaker 1: the proposals. Yeah, No, I think it is an important 521 00:29:32,960 --> 00:29:36,720 Speaker 1: contributor to the outlook. Although you know, I think remember 522 00:29:36,760 --> 00:29:40,040 Speaker 1: that infrastructure is something that gets spread over ten years, 523 00:29:40,080 --> 00:29:44,040 Speaker 1: so it's not a replacement for a fading fiscal impulse. Um, 524 00:29:44,160 --> 00:29:46,520 Speaker 1: we are going to see a fading fiscal impulse. We've 525 00:29:46,560 --> 00:29:51,080 Speaker 1: had a tremendous recovery push that has been stoking a 526 00:29:51,080 --> 00:29:53,480 Speaker 1: lot of the supply chain pressures. That's going to ease 527 00:29:53,600 --> 00:29:56,880 Speaker 1: back as we move through the year and into next year. 528 00:29:57,320 --> 00:30:01,080 Speaker 1: But underlying that is a pretty decent recovery so far. 529 00:30:01,280 --> 00:30:05,160 Speaker 1: So UM, we we expect given the GDP tracking, we're 530 00:30:05,160 --> 00:30:07,680 Speaker 1: gonna see a nice bounce back in May hiring. I 531 00:30:07,720 --> 00:30:11,200 Speaker 1: think April was the outlier. Uh. Maybe we do have 532 00:30:11,240 --> 00:30:15,840 Speaker 1: some frictions reconnecting people to employers and some sectoral reallocation, 533 00:30:16,400 --> 00:30:18,760 Speaker 1: but there's a lot of demand out there and I 534 00:30:18,800 --> 00:30:21,440 Speaker 1: think ultimately that's going to lead a strong labor market 535 00:30:21,480 --> 00:30:24,840 Speaker 1: recovery and you won't need we won't be as reliant 536 00:30:24,880 --> 00:30:28,840 Speaker 1: on the fiscal impulse to get a decent economic performance 537 00:30:28,920 --> 00:30:30,880 Speaker 1: next year. So I don't think it's the be all 538 00:30:30,920 --> 00:30:33,280 Speaker 1: and end all. I do think it's UM, it will 539 00:30:33,360 --> 00:30:39,120 Speaker 1: cause sectoral reallocation. You're pulling in resources for this infrastructure, uh, 540 00:30:39,320 --> 00:30:43,280 Speaker 1: you know, agenda, and that will move resources towards that 541 00:30:43,480 --> 00:30:46,680 Speaker 1: from other sectors, so that that might be different otherwise, 542 00:30:47,120 --> 00:30:49,160 Speaker 1: But I think we are going to hand the baton 543 00:30:49,360 --> 00:30:54,080 Speaker 1: back to the natural expansionary dynamic towards the end of 544 00:30:54,080 --> 00:30:56,640 Speaker 1: this year and internet. Julia, can you elaborate a little 545 00:30:56,640 --> 00:30:59,640 Speaker 1: bit about April being the outlier and expecting hiring to 546 00:30:59,760 --> 00:31:03,320 Speaker 1: really pick up what has been responsible for this labor 547 00:31:03,360 --> 00:31:05,560 Speaker 1: market shortage at a time when there are still so 548 00:31:05,560 --> 00:31:08,840 Speaker 1: many people out of work. Yeah, I think there's a 549 00:31:08,840 --> 00:31:11,360 Speaker 1: lot of frictions. There was actually a really nice article 550 00:31:11,480 --> 00:31:14,720 Speaker 1: on on restaurant workers in the Washington Post this morning 551 00:31:14,760 --> 00:31:17,840 Speaker 1: that was talking to the workers themselves. We're coming out 552 00:31:17,840 --> 00:31:21,080 Speaker 1: of the pandemic, and we shouldn't forget that a lot 553 00:31:21,120 --> 00:31:24,600 Speaker 1: of people have made changes in their lives. They think 554 00:31:24,640 --> 00:31:27,960 Speaker 1: about their work differently. Now is forever changed. If you 555 00:31:28,000 --> 00:31:30,760 Speaker 1: are on the front lines, Um, you don't look at 556 00:31:31,000 --> 00:31:34,400 Speaker 1: your sector the same and so you're making decisions about 557 00:31:34,400 --> 00:31:36,680 Speaker 1: where do I want to be, what do I want 558 00:31:36,720 --> 00:31:39,160 Speaker 1: to be doing, and what am I willing to work for? 559 00:31:39,320 --> 00:31:43,520 Speaker 1: And so we're seeing that negotiation happening right now that 560 00:31:43,680 --> 00:31:47,640 Speaker 1: it's not a question of whether people will return to work, 561 00:31:47,720 --> 00:31:51,200 Speaker 1: it's where they'll return to work at what wage and 562 00:31:51,240 --> 00:31:54,480 Speaker 1: then how that all sort of settles out in coming months. 563 00:31:54,480 --> 00:31:58,000 Speaker 1: But we've got millions of people who are actively looking 564 00:31:58,040 --> 00:32:00,960 Speaker 1: for work, Julie. Very quickly, you're one final question to 565 00:32:01,000 --> 00:32:06,040 Speaker 1: your point on wages, are they transitory? Yeah. I think 566 00:32:06,040 --> 00:32:08,480 Speaker 1: what we're seeing Tom is something similar to what we're 567 00:32:08,480 --> 00:32:11,960 Speaker 1: seeing on the price side. So you've got a a 568 00:32:12,560 --> 00:32:16,400 Speaker 1: excess demand for workers in certain sectors that's going to 569 00:32:16,520 --> 00:32:19,560 Speaker 1: lead to a level shift up in their wage race. 570 00:32:20,000 --> 00:32:23,600 Speaker 1: We're seeing that very clearly, uh in the leisure and 571 00:32:23,680 --> 00:32:27,640 Speaker 1: hospitality sector, so uh, and I think that's long overdue. 572 00:32:27,680 --> 00:32:30,240 Speaker 1: So that's great news for those workers. That could be 573 00:32:30,280 --> 00:32:34,600 Speaker 1: a relative price shift, right, we could see less buoyant 574 00:32:34,720 --> 00:32:38,920 Speaker 1: wage gains uh if that's compressing profits in other at 575 00:32:38,960 --> 00:32:41,280 Speaker 1: the top end of the wage spectrum. And that's something 576 00:32:41,320 --> 00:32:44,760 Speaker 1: we saw at the end of the last cycle pre COVID, 577 00:32:44,800 --> 00:32:47,480 Speaker 1: when we were in a very strong labor market. We 578 00:32:47,560 --> 00:32:51,520 Speaker 1: saw the lower wage workers getting the strongest gains, the 579 00:32:51,840 --> 00:32:55,240 Speaker 1: biggest raises, and the top end workers seeing their wage 580 00:32:55,240 --> 00:32:59,240 Speaker 1: gains flow a bit and that kept the overall wage 581 00:32:59,280 --> 00:33:03,040 Speaker 1: bill UH sort of moderate, the growth in wages moderate. 582 00:33:03,160 --> 00:33:05,480 Speaker 1: And I don't see any reason why we shouldn't see 583 00:33:05,480 --> 00:33:08,440 Speaker 1: that same kind of dynamic with a relative shift with 584 00:33:08,640 --> 00:33:13,240 Speaker 1: lower wage workers, especially frontline workers, getting the biggest raises 585 00:33:13,320 --> 00:33:16,560 Speaker 1: as we reopen the economy. Jenny always enjoy catching out 586 00:33:16,600 --> 00:33:18,840 Speaker 1: with you, particularly this morning, Jenny carting out of that 587 00:33:18,880 --> 00:33:23,200 Speaker 1: of macroid policy perspective. This is the Bloomberg Surveillance Podcast. 588 00:33:23,440 --> 00:33:26,840 Speaker 1: Thanks for listening. Join us live weekdays from seven to 589 00:33:26,920 --> 00:33:30,960 Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television 590 00:33:31,320 --> 00:33:35,360 Speaker 1: each day from six to nine am for insight from 591 00:33:35,360 --> 00:33:39,920 Speaker 1: the best in economics, finance, investment, and international relations. And 592 00:33:40,000 --> 00:33:45,200 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 593 00:33:45,200 --> 00:33:48,520 Speaker 1: dot com, and of course on the terminal. I'm Tom 594 00:33:48,640 --> 00:33:50,960 Speaker 1: Keene and this is Bloomberg