WEBVTT - Surveillance: Reopening Trade With Laidler 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.320 and of course on the Bloomberg terminal. So I'm set 0:00:29.400 --> 0:00:31.479 up our next guest. This from Ben Laidler of ETA. 0:00:31.480 --> 0:00:33.040 All right, this is what he had to say. Analysts 0:00:33.040 --> 0:00:37.320 are dramatically underestimating the recovering company profits. They have hugely 0:00:37.400 --> 0:00:40.080 underestimated the earnings rebound for three quarters in a row, 0:00:40.520 --> 0:00:43.600 and Tommy thinks they will continue to do so. This 0:00:43.720 --> 0:00:45.959 is some of the nuances of the bullmarket. And with that, Yard, 0:00:46.040 --> 0:00:48.559 Danny and David Coston with us later as a standout 0:00:48.600 --> 0:00:51.480 show John, Ben Laidler more than anyone I know, he's 0:00:51.479 --> 0:00:54.800 consistently been shut up and get along. He's been doing 0:00:54.840 --> 0:00:57.680 that for pushing three years now. More than anyone else. 0:00:57.720 --> 0:01:00.880 He has reaffirmed his optim as some week to week. 0:01:01.000 --> 0:01:03.240 The Equity Bill joined us right now, Ben later at 0:01:03.400 --> 0:01:06.280 a global market strategist. Ben, let's start there, why do 0:01:06.319 --> 0:01:09.600 you think this will continue? So? I look at forecasts 0:01:09.600 --> 0:01:13.479 from the consensus says that earnings actually four next quarter, 0:01:13.560 --> 0:01:15.280 the quarter after that, and the quarter after that. But 0:01:15.400 --> 0:01:17.959 this was the peak. I disagree with that. You look 0:01:18.000 --> 0:01:22.319 forward to two, consensus has nine earnings growth. I mean 0:01:22.319 --> 0:01:24.399 that just looks like a sort of placeholder that we 0:01:24.440 --> 0:01:26.360 haven't really got around to sort of looking at yet. 0:01:26.800 --> 0:01:29.319 Um And and again, you know, we're coming off just 0:01:29.360 --> 0:01:33.080 this huge earnings rebound, which the market consistently underestimates. I mean, 0:01:33.160 --> 0:01:35.640 just but overy one second. I mean the last quarter, 0:01:36.200 --> 0:01:38.840 coming in, we thought we were gonna get sixty earnings growth. 0:01:39.160 --> 0:01:41.399 Coming out, we had ninety. I mean that that's just 0:01:41.440 --> 0:01:45.039 a dramatic, dramatic um, you know, earnings mix. And I 0:01:45.040 --> 0:01:47.320 think that again there's more to come, I mean growth, 0:01:47.720 --> 0:01:50.800 you know, it's very very high and very resilient to 0:01:51.040 --> 0:01:53.360 you know, this third sort of virus way, these concerns 0:01:53.360 --> 0:01:55.920 on margins. I think this is sort of the peak 0:01:55.960 --> 0:01:58.000 of the margin pressure. And we just saw all time 0:01:58.080 --> 0:02:01.160 high margins. So and I think that sort of underlying driver, 0:02:01.240 --> 0:02:03.360 if you like, of why consensus is so verish. But 0:02:03.680 --> 0:02:05.840 you know, I think the march impressure is right now. 0:02:05.880 --> 0:02:07.600 It's not you know, it's it's it's not in twelve 0:02:07.640 --> 0:02:10.640 months time, and that sort of top line remains remains 0:02:10.639 --> 0:02:14.480 super strong, and people continue to underestimate the earnings leverage 0:02:14.480 --> 0:02:16.760 to that top line. I mean, companies did a lot 0:02:16.760 --> 0:02:19.239 of costs set over the last sort of twelve months 0:02:19.320 --> 0:02:22.040 or so, and you know that's where the mistakes been made, 0:02:22.120 --> 0:02:26.639 the leverage earnings to that sort of incremental improvement in revenues. 0:02:26.960 --> 0:02:29.840 Then the key phrase there for me is placeholder. You 0:02:30.000 --> 0:02:33.160 remember when the street at a conviction and they had 0:02:33.200 --> 0:02:35.639 a twenty one belief for twenty two belief and they'd 0:02:35.680 --> 0:02:38.200 even get out the June or twenty three right now, 0:02:38.320 --> 0:02:42.600 I totally take your point and the timidity of the market. 0:02:42.840 --> 0:02:46.560 How should our viewers and listeners play that timidity when 0:02:46.560 --> 0:02:48.959 they look out to say, oh, I don't know February 0:02:49.040 --> 0:02:52.720 of twenty two right. So so I think earnings are 0:02:52.720 --> 0:02:55.239 being underestimated by maybe a factor of two for next year, 0:02:55.360 --> 0:02:57.560 and I think the way to think about that is 0:02:57.600 --> 0:02:59.959 a I think that gives more oxygen for this market 0:02:59.800 --> 0:03:03.200 to keep moving up. And secondly, and as importantly, you know, 0:03:03.240 --> 0:03:05.040 as we're facing sort of the fair about to make 0:03:05.080 --> 0:03:07.680 a sort of decision on tapering. I think that's the 0:03:07.680 --> 0:03:10.639 sort of insurance policy to the risk here. I mean, 0:03:10.680 --> 0:03:14.000 earning evaluations at twenty one times, that's super high. You know, 0:03:14.040 --> 0:03:16.040 bond yields go up. The FED tasks tapering. I mean, 0:03:16.080 --> 0:03:18.519 those valuation numbers are probably gonna keep coming down a bit. 0:03:18.800 --> 0:03:20.560 But the big offset to that, which I think we 0:03:20.600 --> 0:03:24.480 continue to underestimate, is that growth will more than offset that. 0:03:24.720 --> 0:03:26.679 And I think that's the pathway to this market to 0:03:26.800 --> 0:03:29.760 sort of continuing higher even as we move through sort 0:03:29.760 --> 0:03:32.760 of FED tapering and potentially lower evaluations. Then what do 0:03:32.800 --> 0:03:36.040 you say to potential critics who say, look, take a 0:03:36.040 --> 0:03:38.000 look at the delta area that's spreading, take a look 0:03:38.000 --> 0:03:39.840 at some of the shutdowns that we're seeing in China, 0:03:40.120 --> 0:03:43.680 some of the potential regulatory actions that are slowing growth there. 0:03:44.000 --> 0:03:47.840 All of these issues a contribute to supply side constraints 0:03:48.080 --> 0:03:51.520 that will lead to ongoing margin pressures and be removes 0:03:51.680 --> 0:03:54.520 some China demand from the market. What do you say 0:03:54.680 --> 0:03:57.280 to people who say, no, these margin pressures are going 0:03:57.280 --> 0:04:01.200 to continue for a long time. I say, look at 0:04:01.200 --> 0:04:04.000 the data right now, so PPR, you know producer prices 0:04:04.000 --> 0:04:06.280 if you're gonna get today, you know minus consumer prices. 0:04:06.280 --> 0:04:07.720 You look at the p M I S sort of 0:04:07.720 --> 0:04:11.160 input prices minus output prices, it's really hard for me 0:04:11.240 --> 0:04:13.760 to see that. You're going to see, you know, the discrepancy, 0:04:13.840 --> 0:04:16.120 the gap, that huge gap that we've seen over the 0:04:16.200 --> 0:04:17.880 last sort of six to nine months. You know, that 0:04:18.000 --> 0:04:19.920 really continuing. So I think, you know, margins are going 0:04:19.960 --> 0:04:21.680 to be under pressure, but I think that's going to 0:04:21.720 --> 0:04:25.200 be more than offset by this, by by the revenue rebound. 0:04:25.200 --> 0:04:26.960 I mean, just for example, just look at the sort 0:04:27.000 --> 0:04:30.400 of these classic reopening stocks. You know, those earnings are 0:04:30.440 --> 0:04:34.599 still down from where they work coming into the crisis. 0:04:34.839 --> 0:04:37.599 I mean, this reopening trade has I would argue, hasn't 0:04:37.640 --> 0:04:39.680 even started yet. I mean, these reopening stocks are still 0:04:39.760 --> 0:04:42.720 under mowhelmed sort of work from home by six the 0:04:42.839 --> 0:04:46.240 earnings have still been absolutely decimated, and you know, your 0:04:46.279 --> 0:04:48.600 average economy glotally it's still you know, if you look 0:04:48.640 --> 0:04:51.400 at these sort of lockdown indices, they're they're over fifty right, 0:04:51.440 --> 0:04:54.080 relative to zero by definition before we came into this, 0:04:54.640 --> 0:04:57.280 and you know, in the world hasn't been fully vaccinated yet. 0:04:57.279 --> 0:04:59.120 So I think there's a reopening trade which is gonna 0:04:59.160 --> 0:05:02.359 push revenues or it's gonna put journings is badly to 0:05:02.360 --> 0:05:05.520 start started, and it may be delayed somewhat here, absolutely, 0:05:06.320 --> 0:05:09.039 but it's it's it's not derailed. And and and the 0:05:09.040 --> 0:05:11.760 macro day that we're seeing tells you we're just learning 0:05:11.800 --> 0:05:14.760 to live with this. I mean, this is the third wave. Um, 0:05:14.800 --> 0:05:16.880 you know, we're a bit more vaccinated, we're a bit 0:05:16.880 --> 0:05:19.280 more used to dealing with this. And I think again, 0:05:19.360 --> 0:05:21.520 earnings are going to remake very resilient and the market's 0:05:21.560 --> 0:05:24.360 underestimating them. That is quite a statement to wrap things out. 0:05:24.440 --> 0:05:27.720 Ben Laidla of ETA Global Market STRATEGYES Ben, thank you 0:05:32.279 --> 0:05:35.599 right now, a massive joy. Michael Spence is any number 0:05:35.600 --> 0:05:38.400 of things, including a noble lawyer. Yes it's General Atlantic 0:05:38.680 --> 0:05:42.240 Senior Advisor, but he is someone who was thoughtfully rebuilt 0:05:42.279 --> 0:05:45.800 American education with his work at Stanford and then onto 0:05:45.880 --> 0:05:49.080 New York University and the Lawya joins us this morning 0:05:49.240 --> 0:05:53.159 from Hello, welto Italy. This is something folks you need 0:05:53.240 --> 0:05:56.760 to know about surveillance is these guys are on the shores. 0:05:57.120 --> 0:06:00.320 It's some fancy, gorgeous place and they drive up in 0:06:00.360 --> 0:06:03.160 whatever they want to drop in to pretend they're toughen 0:06:03.279 --> 0:06:06.839 it out in Palo Alto at Stanford. You're not at Stanford, 0:06:06.839 --> 0:06:10.680 are you, Professor Spence? I am not on the coast 0:06:10.680 --> 0:06:13.200 of Italy. Very good, that's good to know. Right now, 0:06:13.320 --> 0:06:16.640 I want to know a redo of your wonderful book 0:06:16.640 --> 0:06:20.080 on convergence of a decade ago, and I want to 0:06:20.120 --> 0:06:23.920 take a chapter there on multi speed globalism and say 0:06:24.040 --> 0:06:29.560 it's convergence within what certainly we're seeing a multi speed pandemic. 0:06:29.960 --> 0:06:36.400 How do we come out of this with constructive convergence? Well, Tom, 0:06:36.440 --> 0:06:38.919 I mean it's a very important question that you raised 0:06:38.920 --> 0:06:43.039 so briefly. Um, I think there's some serious question about 0:06:43.040 --> 0:06:46.320 whether the convergence is going to be fairly complete with 0:06:46.360 --> 0:06:49.360 respect to the low income countries. I mean, they're adversely 0:06:49.400 --> 0:06:53.479 affected by it's nearly a perfect storm, the pandemic, with 0:06:53.720 --> 0:06:58.600 very very slow vaccine rollout, that the the climate change 0:06:58.880 --> 0:07:03.239 is obviously accelerating. They have demographic problems, they have internal 0:07:03.279 --> 0:07:06.640 governance problems. So so you know, it was always going 0:07:06.680 --> 0:07:09.239 to be a kind of struggle to get there. But 0:07:09.240 --> 0:07:13.480 but I think, you know, with digital technology coming, questioning 0:07:13.560 --> 0:07:15.680 the growth model and so on, I think you know, 0:07:15.840 --> 0:07:19.320 we probably have to rethink this and in in the meantime, 0:07:19.360 --> 0:07:22.280 I mean, we have some important priorities before us, and 0:07:22.320 --> 0:07:26.160 I think item one on the list would be a 0:07:26.240 --> 0:07:29.440 real plan to roll out the vaccine global. You have 0:07:29.480 --> 0:07:33.440 a cottage industry and consultancy on the Pacific RIM and 0:07:33.480 --> 0:07:38.280 particularly to China. You have studied the domestic dynamics of China. 0:07:38.800 --> 0:07:43.600 What is our best practice to assist Beijing to diminish 0:07:43.680 --> 0:07:49.400 the use of coal? Um? You know, they have the 0:07:49.440 --> 0:07:53.400 technology to get this done. Um. And it's not clear 0:07:53.440 --> 0:07:56.240 to me why they aren't moving faster. Now. You know, 0:07:56.360 --> 0:07:58.960 China is far enough along in their economic development that 0:07:59.040 --> 0:08:02.440 they have a problem that's similar cars, which is replacing 0:08:02.520 --> 0:08:09.400 coal and fossil fuels with green energy and electricity generation. Uh. 0:08:09.440 --> 0:08:12.840 And whereas a lot of you know, earlier stage countries, 0:08:12.880 --> 0:08:16.120 you know, can have most of the electricity generation capacity 0:08:16.160 --> 0:08:18.520 to build, so they can build it green, you know, 0:08:18.680 --> 0:08:22.200 ab initio, so to speak. Um. But I I think 0:08:22.240 --> 0:08:24.240 you know the answer to that is, I don't know. 0:08:24.400 --> 0:08:26.440 And I think we ought to have a serious talk 0:08:26.520 --> 0:08:31.400 in the context of what is now you know, globally 0:08:31.440 --> 0:08:34.120 perceived as a serious problem. And I think we need 0:08:34.160 --> 0:08:37.400 acceleration everywhere on a broader level of Michael in order 0:08:37.440 --> 0:08:42.400 to lobby for an acceleration to greenify the industries like 0:08:42.520 --> 0:08:46.240 coal and like fossil fuels. In general, there's a question 0:08:46.520 --> 0:08:49.920 of the labor market and whether some of the adaptation 0:08:50.280 --> 0:08:53.040 of the U the U S and Chinese economy actually 0:08:53.040 --> 0:08:55.280 helps the labor market, where you can make an argument 0:08:55.480 --> 0:08:59.960 that it will actually provide some sort of back tail 0:09:00.040 --> 0:09:03.640 win basically to the improvements that the Biden administration and 0:09:03.960 --> 0:09:07.080 jes and Ping would like to see. I think I 0:09:07.080 --> 0:09:09.120 think there's a lot of merit in that argument, Lisa. 0:09:09.520 --> 0:09:13.360 I mean, you know, with very large amounts of public 0:09:13.400 --> 0:09:17.040 sector and private sector investment, which is what it's going 0:09:17.080 --> 0:09:19.760 to take to deal with this problem in China, in 0:09:19.840 --> 0:09:23.199 the United States, in Europe. Um, there's gonna be lots 0:09:23.240 --> 0:09:27.680 of you know, economic activity and employment associated with it. Now, 0:09:27.720 --> 0:09:29.920 you know, the flip side of the coin is this 0:09:30.000 --> 0:09:32.440 is a transition and the structure of the economy, So 0:09:32.480 --> 0:09:38.160 they'll be pockets of distress that require some kind of support. 0:09:38.240 --> 0:09:40.440 But I think when you add it all up, it's 0:09:40.440 --> 0:09:45.920 a positive provided the provided the investment momentum is behind it. 0:09:46.000 --> 0:09:49.480 Is the investment momentum more likely to come from public entities, 0:09:49.640 --> 0:09:54.319 or private entities. You know what what I was talking 0:09:54.320 --> 0:09:57.320 with John Brown the other day, who's you know, probably 0:09:57.480 --> 0:09:59.520 one of one of the most knowledgeable people I know 0:09:59.760 --> 0:10:02.360 in in the in the energy field, and he thinks 0:10:02.400 --> 0:10:05.040 it's a combination, right. You know, I don't know exactly 0:10:05.040 --> 0:10:08.720 what the percentages. Let's call it. We need public sector 0:10:08.760 --> 0:10:12.840 investment UM in the whole variety of kinds of infrastructure 0:10:12.960 --> 0:10:16.280 and research and stuff. But we need private sector investment 0:10:16.320 --> 0:10:20.640 to deliver the technologies that that businesses are now demanding. 0:10:20.679 --> 0:10:25.320 I mean business is business broadly globally, not completely, has 0:10:25.360 --> 0:10:28.559 committed to being part of the solution to this problem. 0:10:28.640 --> 0:10:31.320 So that then the question is, and what are we 0:10:31.360 --> 0:10:35.040 gonna do? And the answer is, a whole bunch of 0:10:35.080 --> 0:10:39.000 investment has to occur to provide solutions, uh, in the 0:10:39.040 --> 0:10:42.320 whole variety of sectors. I think it's coming. Whether it's 0:10:42.320 --> 0:10:45.800 coming fast enough, I think it's the open question. Your 0:10:45.840 --> 0:10:50.920 speech in Stockholm a few years ago, Professor Spence, was 0:10:50.960 --> 0:10:54.800 about signaling about the things that we do within our 0:10:54.840 --> 0:10:58.839 system and in our financial system that signaled to us, 0:10:59.320 --> 0:11:02.800 what is the signal of this odd time? We live 0:11:02.840 --> 0:11:09.720 in a massive monetary accommodation and particularly unprecedented fiscal stimulus 0:11:09.720 --> 0:11:15.240 in the United States. What are we signaling? I think, 0:11:15.280 --> 0:11:18.400 what what's what's being signaled? And it's the Central Bank 0:11:18.440 --> 0:11:22.160 in the administration. Is that, you know, in balancing off 0:11:22.240 --> 0:11:26.280 sort of you know, potential inflation slash instability as opposed 0:11:26.320 --> 0:11:30.160 to sort of righting the ship in terms of inclusive growth. 0:11:30.200 --> 0:11:34.720 They're going for inclusive growth. Uh and and there I 0:11:34.760 --> 0:11:38.160 think if you've got them privately, they would say, yeah, 0:11:38.200 --> 0:11:41.440 I know we're running some risks on on the other side, 0:11:41.880 --> 0:11:45.439 but but it's worth it. We we had a terribly 0:11:45.480 --> 0:11:49.320 weak um and unequal recovery from the Great Financial Crisis. 0:11:49.400 --> 0:11:53.160 We're not doing it again, and we're gonna you know, 0:11:54.920 --> 0:11:58.880 fire all the guns. I mean, just johonn if I 0:11:58.960 --> 0:12:02.840 may here Pressure Spence, a guy named Boston, a guy 0:12:02.880 --> 0:12:06.280 named John Taylor out at Palo Alto, Stanford. It looks 0:12:06.280 --> 0:12:09.400 a lot like Palo Alto, Italy, Michael Spence, but it's 0:12:09.400 --> 0:12:12.720 out at Stanford. They're gonna take a more conservative tax 0:12:12.840 --> 0:12:16.599 to this and say we can't trust the path to 0:12:16.840 --> 0:12:21.439 inclusive growth. How should the Biden administration respond to that? 0:12:21.720 --> 0:12:27.720 In liberals worldwide, Well, you know, I think the Biden administration. 0:12:29.640 --> 0:12:32.680 This is a personal opinion, and I respect my colleagues 0:12:32.720 --> 0:12:34.600 who are you know, at Stanford, who are I think 0:12:34.640 --> 0:12:37.280 a little bit more conservative on this than I am possible. 0:12:37.280 --> 0:12:41.520 But my view is the deficit that we faced in 0:12:41.559 --> 0:12:45.320 America that caused our growth patterns to be um out 0:12:45.320 --> 0:12:49.439 of out of kilter in terms of inclusiveness were investment deficits, 0:12:49.800 --> 0:12:52.520 some of its infrastructure, some of its human capital, some 0:12:52.640 --> 0:12:55.560 of it's you know, kind of new technology and so on. 0:12:55.679 --> 0:12:57.560 I think they're trying to address that now. They have 0:12:57.640 --> 0:13:00.199 pressure on the left to do a whole lot more 0:13:00.280 --> 0:13:03.640 than that, um, you know, and make the government a 0:13:03.640 --> 0:13:07.120 whole lot bigger, and to be perfectly honest, you know, 0:13:07.200 --> 0:13:09.320 beyond a certain point. I don't think that's gonna fly 0:13:09.679 --> 0:13:12.120 in the American context. I mean, you know, when you 0:13:12.240 --> 0:13:16.040 when you start getting governments that are noticeably larger than 0:13:16.520 --> 0:13:20.960 what Americans broadly are comfortable with. The bark uh And 0:13:21.000 --> 0:13:23.760 we won't go down that road onto the midterms next 0:13:23.840 --> 0:13:27.280 year politically speaking, anyway, Michael gonna catch up. Appreciate time, sir, 0:13:27.360 --> 0:13:30.319 as always the wonderful Michael spents there Nobolt Laureate and 0:13:30.400 --> 0:13:38.560 General Atlantic Senior advisor. Well, let's get one for you 0:13:38.840 --> 0:13:42.640 right now with any research founder and chief investment strategist, 0:13:42.720 --> 0:13:45.760 and let's start there. The path to five K on 0:13:45.800 --> 0:13:48.480 the SMP five hundred next year. Just walk us through 0:13:48.480 --> 0:13:51.600 the framework for you, Ed. Well, you know, forecasting the 0:13:51.640 --> 0:13:54.400 stock market is actually very easy. It's only two variables. 0:13:54.440 --> 0:13:56.400 What do you have to do is get P and 0:13:56.559 --> 0:14:00.199 E right. The trick is getting them right. Uh. And 0:14:01.160 --> 0:14:03.559 the challenge up ahead here, I think is the valuation 0:14:03.640 --> 0:14:08.160 multiple has already quite elevated at around twenty two. It's 0:14:08.240 --> 0:14:11.520 been an earnings driven bull market. We've had a melt 0:14:11.600 --> 0:14:15.920 up really since March twenty three of last year, and 0:14:15.960 --> 0:14:19.560 initially that melt up was led by the PE. Uh forward. 0:14:19.560 --> 0:14:23.520 PE went from twelve point nine to twenty three by 0:14:23.880 --> 0:14:27.400 m September of last year. And since May of last year, 0:14:27.480 --> 0:14:29.880 earnings have been on fire. They're gonna be up eighty 0:14:29.920 --> 0:14:32.400 percent on a year over year basis just in the 0:14:32.440 --> 0:14:36.880 second quarter. It should be up about forty for the 0:14:36.960 --> 0:14:40.200 year as a whole. Uh. So, I think the market's 0:14:40.240 --> 0:14:43.320 going higher. And my bullishness is based on my perception 0:14:43.560 --> 0:14:46.320 that there's no recession ahead, there's no credit crunch ahead. 0:14:46.600 --> 0:14:49.440 And they're still higher earnings ahead your Denny, when you 0:14:49.440 --> 0:14:53.040 took your PhD at Yale University with a privileged faculty 0:14:53.040 --> 0:14:55.160 at the time. I can't say enough about the quality 0:14:55.200 --> 0:14:58.840 of Yale in nineteen seventy six and down migrated from 0:14:58.880 --> 0:15:01.800 one thousand out to where we are now at thirty 0:15:01.880 --> 0:15:05.160 six thousand. On the way was a Carter malaise. As 0:15:05.240 --> 0:15:08.440 you know, from seventy six to roughly eighty two there 0:15:08.560 --> 0:15:11.680 was just a flatness. Is the thing we're not seeing 0:15:11.720 --> 0:15:14.400 here is not the up and down to the financial media, 0:15:14.920 --> 0:15:18.320 but the ability to just go flat and rest for 0:15:18.360 --> 0:15:21.320 a while. I think the huge story when you compare 0:15:21.360 --> 0:15:26.760 the nineteen seventies, which was called the Great Inflation Era, uh, 0:15:26.800 --> 0:15:29.600 and the what I think is going to is the 0:15:29.680 --> 0:15:34.520 Roaring twenties era right now is productivity. Productivity collapsed in 0:15:34.560 --> 0:15:39.200 the nine and this time around, productivity is up from 0:15:39.360 --> 0:15:43.080 zero point six percent on a twenty quarter basis. I 0:15:43.080 --> 0:15:46.120 try to smooth it out. That's what it was not 0:15:46.240 --> 0:15:49.720 too long ago, at the end of fifteen. Right now, 0:15:50.000 --> 0:15:52.200 we just got a new number. It's a two percent. 0:15:52.480 --> 0:15:55.440 I think it's going to four percent at leasta. Greg 0:15:55.440 --> 0:15:58.880 Granton at Yale University. The acclaimed his story and calls 0:15:58.920 --> 0:16:01.240 it the dismal seven in these I don't hear that 0:16:01.360 --> 0:16:03.760 right now, No no one saying it's the dismal seventies. 0:16:03.760 --> 0:16:05.360 Some people saying that we might get some sort of 0:16:05.400 --> 0:16:09.720 inflationary pressures that resemble something at last seen perhaps closer 0:16:09.760 --> 0:16:12.680 to seventies than we've seen in recent decades. And how 0:16:12.760 --> 0:16:15.080 much is your call five thousand by the year end 0:16:15.120 --> 0:16:18.600 of two predicated on treasury yields remaining where they are 0:16:18.840 --> 0:16:23.080 or around or around there. Well, I have to say 0:16:23.160 --> 0:16:26.640 that this year has been a tricky one, uh for 0:16:26.640 --> 0:16:30.840 forecasting the bond market. And uh I was I wasn't 0:16:30.880 --> 0:16:33.520 surprised that I went to one point seven percent back 0:16:33.560 --> 0:16:36.560 in March. I was surprised that I went back to 0:16:36.680 --> 0:16:40.080 one point one twelve percent recently, But now I'm not 0:16:40.160 --> 0:16:42.960 surprised again that it's heading back up to one point 0:16:42.960 --> 0:16:45.960 three five And I think we could be a two 0:16:45.960 --> 0:16:48.160 percent by the end of the year or sometime next year. 0:16:48.440 --> 0:16:50.360 And I think that would be a clearly a sign 0:16:50.400 --> 0:16:54.200 that the economy is getting a little bit closer to 0:16:54.280 --> 0:16:57.160 normal than it had been for quite some time. Uh. 0:16:57.200 --> 0:17:00.440 Now that could weigh on the on the evaluation ultiple, 0:17:00.800 --> 0:17:04.080 I suppose, And but you know, five thousand is actually 0:17:04.119 --> 0:17:08.760 a fairly conservative outlook. It's in of next year. There's 0:17:09.160 --> 0:17:11.600 plenty of time for earnings to grow along the along 0:17:11.640 --> 0:17:13.560 that time. And by the way, by the end of 0:17:13.600 --> 0:17:17.880 next year, the markets are going to be really discounting three. 0:17:17.920 --> 0:17:20.440 I know it's weird to be talking about that far out, 0:17:20.480 --> 0:17:23.560 but that's what the market does. And I got earnings 0:17:23.560 --> 0:17:26.520 two five this year, two dollars two hundred five dollars 0:17:26.560 --> 0:17:29.000 this year for the SMP five hundred next year two 0:17:29.080 --> 0:17:32.760 hundred fifteen, and then in two thousand and thirteen, looking 0:17:32.840 --> 0:17:35.680 that far out, it could be up two hundred forty bucks. 0:17:35.760 --> 0:17:38.080 So and I think I think on your point, I 0:17:38.080 --> 0:17:41.240 think profit margins are gonna hold up surprisingly well because 0:17:41.280 --> 0:17:43.800 of the productivity story. The story then comes down to 0:17:43.800 --> 0:17:45.720 the second point. Then it's the multiple And if we 0:17:45.760 --> 0:17:47.560 want to talk about twenty three, we'll be talking about 0:17:47.600 --> 0:17:52.080 ray hikes. Can we really tried positively through tapering given 0:17:52.080 --> 0:17:54.280 the amount of stimulus we've had from this federal Reserve 0:17:54.600 --> 0:17:58.600 into a conversation about ray hikes? Well, John, you know 0:17:59.600 --> 0:18:02.120 this tapering talks been around for a long time. It's 0:18:02.160 --> 0:18:05.880 not like a surprise. We've had previous tampering episodes which 0:18:05.880 --> 0:18:09.119 were more on the surprising side. This one certainly isn't. 0:18:09.280 --> 0:18:11.280 As a matter of fact, everybody's kind of wondering why 0:18:11.320 --> 0:18:14.400 they haven't started already given some of the economic data 0:18:14.440 --> 0:18:17.320 that we've had. So I think the market is gonna 0:18:17.320 --> 0:18:19.719 handle tapering just fine. By the way, m too, some 0:18:19.760 --> 0:18:23.080 people are getting starting to freak out about the empty 0:18:23.200 --> 0:18:26.800 growth rate. Uh, what they don't really appreciate is that 0:18:26.880 --> 0:18:30.159 empty today is five trillion dollars higher than there was 0:18:30.240 --> 0:18:33.040 before the pandemic. There's still just a tremendous amount of 0:18:33.080 --> 0:18:36.760 liquidity just sitting there. Uh. People look at velocity. I 0:18:36.760 --> 0:18:39.080 I look at the other side of velocity. If you 0:18:39.160 --> 0:18:42.720 take EMPTWO divided by nominal GDP, it's almost the year's 0:18:42.720 --> 0:18:45.159 worth of them too. Now with nominal GDP it's an 0:18:45.160 --> 0:18:48.200 all time record high. So there's lots of liquidity out 0:18:48.200 --> 0:18:52.040 there that's still kind of pent up. Supply of liquidity 0:18:52.240 --> 0:18:54.600 still bullish at John Tanny, It's gonna catch up, sir 0:18:54.880 --> 0:19:02.560 at any Research founder and chief Investment Strategistics right now. 0:19:02.640 --> 0:19:05.560 Treat for Lisa Rammins and myself, Craig MafA and Michael 0:19:05.640 --> 0:19:08.520 Nathanson they pick up the pieces after the Olympics, the 0:19:08.640 --> 0:19:12.040 streaming frenzy that's out there. And also, and we we 0:19:12.160 --> 0:19:17.159 do a tangent here Lisa on what's going on in Washington. 0:19:17.280 --> 0:19:19.080 Let me go to Craig Mafat on this. This is 0:19:19.080 --> 0:19:22.760 his wheelhouse as well. Craig, this is a story not told, 0:19:22.840 --> 0:19:25.520 which is we're almost on the edge of where there 0:19:25.640 --> 0:19:29.639 is a right to the Internet versus a privilege of 0:19:29.680 --> 0:19:33.080 the Internet. To me, it's a real subtle sea change. 0:19:33.320 --> 0:19:37.000 Are we at the point with Biden legislation that we're 0:19:37.000 --> 0:19:43.960 gonna demand pristine internet coast to coast? Well, first of all, 0:19:44.000 --> 0:19:46.280 thank you for having us back on. Always a pleasure 0:19:46.320 --> 0:19:50.960 to be here. You know, I'm not sure about that. 0:19:50.760 --> 0:19:55.080 That's been a push pull through the last what five administrations. 0:19:55.240 --> 0:19:59.960 And um, and this this question of is broadband utility? 0:20:00.040 --> 0:20:04.200 Should it be treated as a utility versus h that 0:20:04.359 --> 0:20:06.680 that the private sector has actually done a pretty good 0:20:06.760 --> 0:20:10.240 job bringing broadband to Americans. Um and that tension I 0:20:10.240 --> 0:20:12.879 think is appropriate. I don't think it's going to change 0:20:13.280 --> 0:20:17.320 my takeaway from from what's happened in Washington. And look, 0:20:17.359 --> 0:20:20.399 this shouldn't be a surprise is despite the fact that 0:20:20.440 --> 0:20:24.200 we've swung back to a democratic administration, Biden is who 0:20:24.240 --> 0:20:27.000 he said he was. He's a moderate and and and 0:20:27.200 --> 0:20:32.560 actually what we've seen fairly consistently is moderation in most 0:20:32.600 --> 0:20:35.320 of the policies around broadband. There was some talk about 0:20:35.800 --> 0:20:39.919 price regulation and some flirtations in the early drafts of 0:20:40.000 --> 0:20:42.800 the infrastructure plan. That's not where we ended up. So 0:20:42.840 --> 0:20:45.920 I think overall what we're seeing is reasonably friendly to 0:20:46.000 --> 0:20:48.479 the incumbents. There's so many things to talk to you 0:20:48.520 --> 0:20:51.359 about your claim to research here on the hardware of 0:20:51.400 --> 0:20:54.120 the media we look at every day and again, the 0:20:54.160 --> 0:20:57.679 media is content is king and Michael Nathanson, if I 0:20:57.720 --> 0:21:00.320 could go to you, what are you prepared for? What 0:21:00.400 --> 0:21:04.000 are you stealed for? In the streaming wars? Where's the 0:21:04.200 --> 0:21:10.280 curiosity right now? Well, Wren Tom, what I'm waiting for. 0:21:11.160 --> 0:21:14.720 There's someone to tap out, someone who looks at I 0:21:14.720 --> 0:21:18.040 guess we were a solid Warner Media and Discovery merge 0:21:18.119 --> 0:21:21.080 and acknowledgement that this is a hard business to uh 0:21:21.119 --> 0:21:23.840 to master. But I'm waiting to see what VI Common 0:21:23.920 --> 0:21:27.720 Comcast do. They're both too small to win this. So 0:21:28.119 --> 0:21:30.760 Craig and I are both waiting for somebody to realize 0:21:30.800 --> 0:21:33.440 that this is not a great business to chase. It's 0:21:33.440 --> 0:21:36.960 probably better to be a content seller than you know, 0:21:37.000 --> 0:21:41.639 a fifth rated streamer. So we're waiting for more consolidation here. Um. 0:21:41.680 --> 0:21:43.199 I don't know when that's going to be, but to 0:21:43.320 --> 0:21:45.840 us that has to happen. Well, Michael, just to follow 0:21:45.920 --> 0:21:50.600 up on that, are we passed peak content? Lisa? Um, 0:21:50.640 --> 0:21:52.639 I think we're a year two years away. You know, 0:21:52.760 --> 0:21:56.640 Apple's it's gonna put more money to work. Amazon will 0:21:56.640 --> 0:21:58.560 as well, So I would say the next one or 0:21:58.600 --> 0:22:01.840 two years gets peaked. There's clearly to your question, there's 0:22:01.920 --> 0:22:03.920 clearly too much content out there is not enough time 0:22:03.920 --> 0:22:08.360 in the day. The economics are forcing lower, lower returns. Um. 0:22:08.359 --> 0:22:09.919 But I think we're one two years away from it 0:22:09.920 --> 0:22:12.639 when realizing that they need to change their approach. Right, 0:22:12.680 --> 0:22:16.880 there's just too much capital chasing chasing this opportunity. Craig, 0:22:16.920 --> 0:22:20.399 which really wears on the hardware store a story of 0:22:20.440 --> 0:22:23.920 things basically that regardless of who wins the content wars, 0:22:24.160 --> 0:22:26.879 the bottom line is more people are going to be streaming, 0:22:27.160 --> 0:22:30.120 and so perhaps is that the pure play going forward 0:22:30.240 --> 0:22:34.400 to basically hinge on the streaming phenomenon that's only getting stronger, 0:22:34.560 --> 0:22:37.320