WEBVTT - Surveillance: Debt Transparency With Malpass 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com and of course on the Bloomberg. Right now, 0:00:27.680 --> 0:00:32.080 our conversation with the World Bank President David Malpass. David 0:00:32.120 --> 0:00:35.000 I was talking with our Eric Martin, and he is 0:00:35.159 --> 0:00:39.360 quite certain that a key topic here is debt relief 0:00:39.880 --> 0:00:44.400 for beleaguer nations. To begin, give us an update on 0:00:44.479 --> 0:00:50.800 the urgency of debt relief for many troubled nations. Hi, Tom, 0:00:50.960 --> 0:00:55.800 and and and a good morning. Um Well, the deepest 0:00:55.920 --> 0:00:59.760 urgency is for growth and reduction in poverty and in 0:01:00.200 --> 0:01:04.560 to get their countries need investment, new new cash flows, 0:01:05.040 --> 0:01:08.720 new investment, and one obstacle to that is the is 0:01:08.760 --> 0:01:11.679 the debt burden. If you if you're a new investor 0:01:11.720 --> 0:01:14.160 and you know that your money is going to go 0:01:14.319 --> 0:01:18.440 to help pay off old debt, that creates an obstacle 0:01:18.520 --> 0:01:21.560 to the new investment. So we're trying to find relief 0:01:21.680 --> 0:01:25.520 from both the debt service, meaning that the payments that 0:01:25.600 --> 0:01:28.560 the countries have to make. These are the poorest countries 0:01:29.280 --> 0:01:32.640 in the world. They don't have the resources to fight COVID, 0:01:32.959 --> 0:01:37.160 so to reduce their current cash flow payments, but also 0:01:37.280 --> 0:01:40.880 looking at reducing the stock of their debt, which would 0:01:40.920 --> 0:01:43.440 give light at the end of the tunnel the debut 0:01:43.560 --> 0:01:45.720 are expert on this from your tour of duty as 0:01:45.760 --> 0:01:48.640 global economists for Bear Stearns, and you and I know 0:01:49.160 --> 0:01:53.559 Stam Fisher in the Wonderful Summary read book he wrote, 0:01:53.760 --> 0:01:55.640 we know the work of Bill Rhodes when he was 0:01:55.680 --> 0:01:59.080 at City Group on debt workout, etcetera. Is it the 0:01:59.160 --> 0:02:03.520 same pole season procedures? Is from another time and place. 0:02:03.880 --> 0:02:06.960 There's a world bank working at debt workout with a 0:02:07.040 --> 0:02:12.440 new different formula, a new different process. Uh, it's different. 0:02:13.080 --> 0:02:15.640 I talked, happened to talk with Bill Rhodes last week. 0:02:16.000 --> 0:02:19.000 He's doing well. By the way, was involved in many 0:02:19.040 --> 0:02:22.920 of the previous debt restructurings. Those in the nineteen eighties. 0:02:23.320 --> 0:02:26.080 I was at Treasury with the with the during the 0:02:26.200 --> 0:02:30.160 Latin debt crisis. Those were syndicated bank loans and so 0:02:30.240 --> 0:02:35.079 they had a different restructuring process. Uh. And also very 0:02:35.120 --> 0:02:39.919 importantly a different dynamic between creditors and debtors because that 0:02:40.040 --> 0:02:43.679 the banks needed the repayments in order to maintain their 0:02:43.680 --> 0:02:49.919 equity capital. This time around, basically beginning in two thousand 0:02:50.120 --> 0:02:53.359 four or so, there has been a huge build up 0:02:54.000 --> 0:02:58.079 of debt in the poorest countries coming from China and 0:02:58.160 --> 0:03:01.680 also from private sector. Credit is through bonds, your Euro 0:03:01.800 --> 0:03:05.960 bonds for example, and those are those are more difficult 0:03:05.960 --> 0:03:09.760 to instructor and the dynamic between the creditor and the 0:03:09.800 --> 0:03:13.120 debtor has shifted in favor of the creditor. So the 0:03:13.160 --> 0:03:16.920 problem this causes for growth for new investment is the 0:03:17.000 --> 0:03:21.440 creditor is sitting there wanting on the doctor uh, and 0:03:21.520 --> 0:03:25.720 that creates a big challenge in terms of creating light 0:03:25.919 --> 0:03:28.280 at the end of the tunnel for the poorest countries. 0:03:28.400 --> 0:03:31.760 You have on your website, Mr mal Pass a phenomenal 0:03:31.919 --> 0:03:36.760 box chart of these troubled nations and their relationship with China. 0:03:37.280 --> 0:03:39.560 This is a delicate question, David, and I hope you 0:03:39.640 --> 0:03:43.480 come back to Bloomberg Surveillance after my rudeness. But how 0:03:43.520 --> 0:03:47.960 intrusive is a Trump White House in their negotiations with 0:03:48.120 --> 0:03:51.280 China for you at the World Bank to have a 0:03:51.320 --> 0:03:56.880 constructive workout of troubled nation debt with China. How much 0:03:56.920 --> 0:04:01.960 does the Trump administration get in the way. I would 0:04:02.000 --> 0:04:06.800 frame it that way, Tom. The issues are the US 0:04:06.920 --> 0:04:10.400 may have issues with China, for example on trade UH, 0:04:10.840 --> 0:04:14.720 but then the world separately recognizes that we're all trying 0:04:14.720 --> 0:04:18.400 to work together to get growth in developing countries. So 0:04:18.600 --> 0:04:23.360 the challenge is that over the last ten years or so, 0:04:23.800 --> 0:04:29.479 China has UH made many loans into developing countries with 0:04:29.760 --> 0:04:33.400 terms that aren't transparent UH and also with terms that 0:04:33.520 --> 0:04:37.120 are that are higher in interest rate than than than 0:04:37.160 --> 0:04:40.520 the countries can afford UH. And so the challenges is 0:04:40.640 --> 0:04:45.120 somewhat a technical one for the whole world working together 0:04:45.440 --> 0:04:48.440 looking for a way to find a way through this 0:04:48.920 --> 0:04:52.520 and China, China needs to participate the G They in 0:04:52.560 --> 0:04:56.120 the G twenty in April they said they were fully 0:04:56.160 --> 0:05:00.560 engaged in this. But then getting each of the Chinese lenders, 0:05:00.920 --> 0:05:04.680 there's there's many official lenders from China, getting each of 0:05:04.720 --> 0:05:07.479 them on board is a challenge. So what we're pushing 0:05:08.000 --> 0:05:12.080 and I'm glad you raised the website, so we are 0:05:12.120 --> 0:05:15.440 we are thinking that transparency will help UH. And so 0:05:15.560 --> 0:05:19.480 if we can disclose for example, when central banks make 0:05:19.560 --> 0:05:23.279 swaps between each other, that's actually a debt or some 0:05:23.440 --> 0:05:26.479 of the types of those swaps our debts and could 0:05:26.480 --> 0:05:30.560 be disclosed as debts and should be um When Ecuador 0:05:30.600 --> 0:05:34.359 does a restructuring as they did last week, there are 0:05:34.360 --> 0:05:38.360 other creditors who were not included in the main restructuring, 0:05:38.720 --> 0:05:42.760 and the terms of those other restructuring should be disclosed. 0:05:43.040 --> 0:05:45.080 This way people can look at it and get a 0:05:45.120 --> 0:05:50.440 better outcome. Okay, David, good morning to you. So that 0:05:50.520 --> 0:05:55.120 transparency should help maybe facilitate those conversations with China. But 0:05:55.240 --> 0:05:57.520 in the current climate, do you get any sense than 0:05:57.600 --> 0:06:00.960 David that the Chinese are going to join with your 0:06:00.960 --> 0:06:03.839 effort with the d S s I to to alleviate 0:06:03.960 --> 0:06:06.720 this debt servicing burden for the for the for the 0:06:06.760 --> 0:06:12.000 poor nations. Yes, certainly so many of the Chinese creditor agencies, 0:06:12.000 --> 0:06:14.560 so China x In Bank, they have they have a 0:06:14.640 --> 0:06:19.440 number of lenders in China. Uh they're participating in the 0:06:19.560 --> 0:06:23.240 d S s I with the restructuring terms that are 0:06:23.279 --> 0:06:26.200 that other countries are using, some of them are not, 0:06:26.360 --> 0:06:29.640 and so that that creates the challenge that we're that 0:06:29.720 --> 0:06:33.239 we're working on through by disclosing that. In other words, 0:06:33.240 --> 0:06:35.920 if there can be more information I think we'll get 0:06:36.000 --> 0:06:39.120 a better outcome. Other things I should say that we're 0:06:39.160 --> 0:06:42.840 working on is in the longer run, some of the countries, 0:06:42.920 --> 0:06:48.640 the h the most debt constrained, really need a reduction 0:06:48.720 --> 0:06:51.359 in the stock of debt. What we've been talking about 0:06:51.400 --> 0:06:55.720 so far is is the China's participation and everyone, all 0:06:55.800 --> 0:06:59.680 the creditors participating in a moratorium on the on the 0:06:59.720 --> 0:07:03.479 re aiments from the countries. But so far they they're 0:07:04.279 --> 0:07:07.000 the countries are just adding that amount on to the 0:07:07.120 --> 0:07:10.000 end of the loan, so there's not really debt stock 0:07:10.240 --> 0:07:14.080 relief um and with the interest rate environment as low 0:07:14.120 --> 0:07:17.480 as it is right now, net present value isn't a 0:07:17.520 --> 0:07:20.480 good metric of trying to figure that out. So we're 0:07:20.520 --> 0:07:23.240 looking at ways to do a reduction in the actual 0:07:23.280 --> 0:07:27.440 amount owed so that then more investors will come into 0:07:27.520 --> 0:07:32.640 the countries. If we look ahead to the meetings that 0:07:32.720 --> 0:07:35.160 always take place in the in the fall, in the autumn, 0:07:35.240 --> 0:07:37.240 the I m F and the World Bank meetings, should 0:07:37.280 --> 0:07:39.640 we look ahead with that kind of time horizon in 0:07:39.720 --> 0:07:42.680 mind to see an extension of the d S S 0:07:42.720 --> 0:07:46.000 I so further relief on debt servicing costs and should 0:07:46.040 --> 0:07:48.040 we go further than that should we hope in October 0:07:48.080 --> 0:07:51.720 to see something on the underlying stock of debt, then um, 0:07:51.840 --> 0:07:55.840 yes and yes. So I spoke with the G seven 0:07:55.920 --> 0:07:59.680 finance ministers on Monday and they're they're they're favorable, and 0:07:59.680 --> 0:08:01.920 I think to G twenty will be favorable on an 0:08:01.920 --> 0:08:06.160 extension of the debt service moratorium. And then the next 0:08:06.200 --> 0:08:10.120 step is is harder to have agreement to to actually 0:08:10.160 --> 0:08:14.080 do haircuts or write downs. That has happened in the past, 0:08:14.440 --> 0:08:17.800 for example, in the nineteen eighties and the Latin deck crisis, 0:08:17.880 --> 0:08:21.440 it got to the point of of haircuts, but it 0:08:21.520 --> 0:08:24.120 took so long that the countries were in deep, deep 0:08:24.200 --> 0:08:27.040 trouble by the time that happened UH. And so one 0:08:27.080 --> 0:08:29.880 of the things we're trying to do is UH is 0:08:30.000 --> 0:08:33.680 accelerate that so you can get to a good outcome sooner. 0:08:34.480 --> 0:08:36.800 You know, this is important, and I'd like to mention 0:08:37.000 --> 0:08:39.559 other things. We're working on a whole range of areas, 0:08:39.600 --> 0:08:43.760 and one is the inequality of the current global UH crisis. 0:08:43.840 --> 0:08:48.200 It's hitting the forest countries and people the hardest. And 0:08:48.240 --> 0:08:51.360 another so we're working hard on that with big new 0:08:51.720 --> 0:08:56.440 UH surge in World Bank Group lending to these countries 0:08:56.800 --> 0:08:59.280 And the other thing I wanted to mention is vaccines, 0:08:59.360 --> 0:09:03.400 which are so important, and so the fund the financing 0:09:03.480 --> 0:09:07.439 that the World Bank has available for things like healthcare, 0:09:07.600 --> 0:09:10.840 and we we've done over a hundred programs just in 0:09:10.880 --> 0:09:16.160 April and May. Those can be used for vaccines, for therapeutics, 0:09:16.240 --> 0:09:20.040 and so I think the world concentrating on that, putting 0:09:20.040 --> 0:09:23.640 more money into those efforts is used. David, you know what, 0:09:23.679 --> 0:09:25.439 I mean to make a joke about it, because this 0:09:25.520 --> 0:09:28.720 is tragic stuff. But if you look at Jay John 0:09:28.760 --> 0:09:32.720 Burns Murdoch's wonderful work at the FT with Johns Hopkins University, 0:09:33.280 --> 0:09:38.120 there's Bolivia, there's Panama, there's Latin America, and then there's 0:09:38.120 --> 0:09:41.200 this World Bank country, the United States of America up 0:09:41.240 --> 0:09:43.920 there with pandemic. What would David mal Pass in the 0:09:43.920 --> 0:09:47.920 World Bank do to help the United States not have 0:09:48.080 --> 0:09:56.000 as ugly death statistics like these other truly impoverished nations. Uh. 0:09:56.040 --> 0:09:58.280 I mean, one thing we should recognize is we're in 0:09:58.360 --> 0:10:02.000 new territory. The pandemic is new, the severity of it 0:10:02.080 --> 0:10:05.040 is new, and it's coming at a time when many 0:10:05.080 --> 0:10:08.720 of the developing countries had too much debt um So 0:10:08.880 --> 0:10:12.000 as as we think about the the US. I think 0:10:12.080 --> 0:10:16.600 you move through methodically with ways to uh, ways to 0:10:16.800 --> 0:10:20.640 allow the businesses that can reopen, to reopen, the schools 0:10:20.679 --> 0:10:23.680 to reopen where they can. That becomes a very important 0:10:23.720 --> 0:10:28.760 part of people's productivity. You want to raise the productivity. UH. 0:10:28.800 --> 0:10:31.160 And then in the long run you need to get 0:10:31.320 --> 0:10:38.000 good well well UH well targeted investments UM UH in 0:10:38.120 --> 0:10:42.360 the US and everywhere. UH. I think that comes from 0:10:42.440 --> 0:10:46.440 transparency if you know what the investment is. For example, 0:10:46.480 --> 0:10:49.880 in the US time you know, I've advocated the disclosure 0:10:49.960 --> 0:10:53.920 of the outlay projections of public pension funds. A huge 0:10:53.960 --> 0:10:56.560 amount of money goes into these funds and you don't 0:10:56.600 --> 0:11:00.720 know what the what, what the outlay, what the outlays 0:11:00.760 --> 0:11:03.640 are used for, what the projections are for the future 0:11:04.080 --> 0:11:07.360 on those outlays, So they become a burden on the 0:11:07.400 --> 0:11:12.760 allocation of investment. So developing countries, of of of finished 0:11:12.800 --> 0:11:15.760 bit and in developing countries, we need a way that 0:11:15.800 --> 0:11:18.839 they can move investment from the old sectors, the pre 0:11:18.960 --> 0:11:23.760 pandemic sectors, into the new sectors. That's a core ofing 0:11:23.840 --> 0:11:25.880 on We're gonna leave it there. David Malpus, thank you 0:11:25.920 --> 0:11:32.440 for the update with the World Bank as well. Jill 0:11:32.520 --> 0:11:35.520 carry Hall joins us right now with Bank of America. Joe. 0:11:35.520 --> 0:11:38.280 We just sparked to Canadas smoke to Candice Browning here 0:11:38.320 --> 0:11:41.320 in the last hour about your new focus on small 0:11:41.400 --> 0:11:44.720 cap you're a specialist there as well. Is it about 0:11:44.720 --> 0:11:48.560 a rotation from tech to small cap or is it 0:11:48.600 --> 0:11:52.360 about tech still doing well and small cap finally picking 0:11:52.400 --> 0:11:55.679 it up. Well, I think to your point on on 0:11:55.840 --> 0:11:59.640 yields earlier, we've been a market where what's been what's 0:11:59.640 --> 0:12:03.480 been gears has been rewarded, so yield has been scarce, 0:12:03.640 --> 0:12:06.440 growth has been scarce, and you've seen a lot of 0:12:06.440 --> 0:12:10.079 these themes working for a number of years now. Small 0:12:10.120 --> 0:12:14.079 caps have obviously been been challenged by you know, trade tensions, 0:12:14.120 --> 0:12:17.000 They've been challenged by the fundamental backdrop their lack of quality. 0:12:17.400 --> 0:12:19.840 But I think you know, one of will we've been 0:12:19.840 --> 0:12:22.760 cautious relatively on small caps in your term, one of 0:12:22.800 --> 0:12:26.440 the longer term bullish themes for small caps is that 0:12:26.480 --> 0:12:29.720 if we do see this this shift from from globalization 0:12:29.800 --> 0:12:34.000 to localization and the reshoring of US manufacturing which Candice 0:12:34.080 --> 0:12:36.840 was talking about, um, we think that could be a 0:12:36.840 --> 0:12:39.600 bullish longer term theme for for small cap companies in 0:12:39.600 --> 0:12:42.920 the coming years. What is the star the sectors specificity 0:12:42.960 --> 0:12:44.880 of small caps? I mean, do I just go out 0:12:44.920 --> 0:12:47.960 and buy small camps? Are you looking at different sectors 0:12:48.000 --> 0:12:51.960 for example tech small cap right Well, I think one 0:12:52.000 --> 0:12:54.679 of the important things right now is that you are 0:12:54.760 --> 0:12:57.600 seeing a lot of divergence within the market in terms 0:12:57.640 --> 0:13:01.400 of valuations, in terms of performance read so it's been 0:13:01.400 --> 0:13:04.480 a good backdrop for stock pickers UM for from a 0:13:04.520 --> 0:13:07.520 sector basis, we are within small caps starting to see 0:13:07.559 --> 0:13:11.920 some of the more value oriented cyclical sectors start to 0:13:11.960 --> 0:13:14.640 wait better in our works as some of the commodity 0:13:14.679 --> 0:13:18.559 oriented cyclical sectors that previously looked like value traps are 0:13:18.600 --> 0:13:21.840 now starting to look like better value UM. So, overall, 0:13:21.960 --> 0:13:24.240 value is a theme that we like within the market. 0:13:24.320 --> 0:13:27.400 We do expect we will see that rotation out of 0:13:27.440 --> 0:13:31.360 growth into value as the profits recovery and economic recovery 0:13:31.440 --> 0:13:34.440 broadens out. And then on the on the restoring theme, 0:13:34.520 --> 0:13:36.640 we think that you know, there's there's a number of 0:13:36.679 --> 0:13:40.720 subsectors that are slated to benefits. So certainly some some 0:13:40.760 --> 0:13:43.959 tech companies, but also a number of industrials that are 0:13:43.960 --> 0:13:47.920 focused on on automation or engineering. UM even in in 0:13:48.000 --> 0:13:51.160 other cyclical sectors. A number of regional banks that might 0:13:51.160 --> 0:13:55.080 be exposed to manufacturing hubs reefs, which is a big 0:13:55.120 --> 0:13:59.800 part of small caps, that that's a sector where industrial rates, warehouses, 0:13:59.840 --> 0:14:02.920 the could benefit as well. Jil A, good morning to you. 0:14:03.240 --> 0:14:05.520 I've heard a lot about reshoring this week, and a 0:14:05.559 --> 0:14:09.720 lot more in conversations with American strategists and American business 0:14:09.720 --> 0:14:12.640 then than than I have with with people here in Europe. 0:14:12.760 --> 0:14:15.600 Is it going to remain quite a US phenomenon and 0:14:15.720 --> 0:14:18.600 is that because businesses think it plays well in Washington 0:14:18.679 --> 0:14:21.840 or because they really intend to follow through on this well. 0:14:21.880 --> 0:14:24.920 I think while while you as you see firms move 0:14:25.000 --> 0:14:27.520 out of areas like China, there are certainly some other 0:14:27.640 --> 0:14:30.360 regions of Asia, for example, that will benefit. But a 0:14:30.400 --> 0:14:33.520 lot of companies are talking about bringing and bringing companies 0:14:33.560 --> 0:14:37.160 back to North America and to the US. So I think, 0:14:37.320 --> 0:14:40.360 you know, in areas like the Midwest and the sun Belt, 0:14:40.400 --> 0:14:43.640 that's where some of these banks, reas, etcetera that that 0:14:43.720 --> 0:14:46.440 I mentioned could could benefit. Um you know, if we 0:14:46.520 --> 0:14:50.640 see higher regions from manufacturing, this could benefit lower income 0:14:50.680 --> 0:14:55.040 consumers and areas like you know, retail value retailers like 0:14:55.120 --> 0:14:57.640 Burlington and Coles. So I think there's a lot of 0:14:57.680 --> 0:14:59.800 areas within the U s CAN that can benefit. And 0:14:59.840 --> 0:15:02.280 we are starting to see early signs of this, even 0:15:02.280 --> 0:15:04.960 though it is a long term theme actually taking hold. 0:15:05.080 --> 0:15:07.600 We're seeing, you know, when we checked earnings calls, We're 0:15:07.600 --> 0:15:09.840 seeing more and more companies start to talk about this 0:15:09.960 --> 0:15:13.520 on earnings calls. We're seeing you know, supply chain professionals 0:15:13.520 --> 0:15:16.440 talk about this. So companies, you know, even though Capex 0:15:16.520 --> 0:15:18.920 has been in a down cycle, they are starting to 0:15:19.120 --> 0:15:22.960 talk about making tangible shifts with respect to this theme. 0:15:23.160 --> 0:15:25.520 And is there something that's going to create jobs in 0:15:25.560 --> 0:15:27.760 America or is it something that's going to going to 0:15:27.840 --> 0:15:31.960 drive the bottom line of businesses that create automated automation technology. 0:15:32.000 --> 0:15:34.720 There are plenty of those in Europe. Yes, we think so. 0:15:34.880 --> 0:15:37.240 And I think Candas mentioned earlier that you know, for 0:15:37.320 --> 0:15:40.640 every manufacturing job that's created, you could see somewhere around 0:15:40.640 --> 0:15:44.120 six or seven jobs created in other industries. So um, 0:15:44.240 --> 0:15:46.560 you know, we think that that's why the overall pick 0:15:46.680 --> 0:15:49.920 up in unemployment and and in potentially wages could could 0:15:49.960 --> 0:15:53.560 benefit some of these areas like select retailers UM, and 0:15:53.600 --> 0:15:57.240 they'll just be more demand for for banking financial services, 0:15:57.320 --> 0:15:59.840 So there's a lot of um knock on effects from 0:15:59.880 --> 0:16:02.680 the scheme, uh that that we could see across the 0:16:02.800 --> 0:16:06.480 U S. And then certainly for for automation, UM you know, 0:16:06.560 --> 0:16:10.160 companies in industrials like Rockwell or companies that focus on 0:16:10.440 --> 0:16:13.440 industrial leadsers or things like that. Um, you know, there's 0:16:13.480 --> 0:16:16.640 that angle as well. That that automation and the Internet 0:16:16.640 --> 0:16:18.360 of things and a lot of these big themes that 0:16:18.400 --> 0:16:20.800 we've been talking about as a research department we see 0:16:20.800 --> 0:16:23.720 as as big multi year themes related to this as well. 0:16:24.960 --> 0:16:27.440 How here with Savita Supermannians work. I mean, when we 0:16:27.440 --> 0:16:29.440 look at the E s G as you know, top 0:16:29.480 --> 0:16:33.360 fifty stocks maybe top two D stacks, can small cap 0:16:33.480 --> 0:16:36.520 go E s G? Are they just not there yet? Well? 0:16:36.520 --> 0:16:38.920 I think you know what, it's a challenge in smaller 0:16:38.920 --> 0:16:41.080 caps because a lot of these companies may not have 0:16:41.160 --> 0:16:44.120 the resources that it came to it, or the or 0:16:44.160 --> 0:16:47.280 the disclosures. So it's tough for to evaluate. But when 0:16:47.320 --> 0:16:49.680 we've done some work looking on on sub themes of 0:16:49.760 --> 0:16:53.040 e SG for example, um, you know, diversity, women on 0:16:53.080 --> 0:16:56.120 the board, etcetera, we found that that E s G 0:16:56.360 --> 0:16:59.360 still still works within small caps, so that companies that 0:16:59.440 --> 0:17:02.320 you know, for we'll have more diverse or as better governance, 0:17:02.640 --> 0:17:06.520 are treating at higher multiples. Consistently you're seeing better returns 0:17:06.520 --> 0:17:09.480 on equity. So this is something that I think as 0:17:09.520 --> 0:17:12.840 the as we continue to see money flow into E 0:17:12.960 --> 0:17:15.800 s G strategies and as companies continue to focus on 0:17:15.840 --> 0:17:18.119 this um we found that E s G was particularly 0:17:18.160 --> 0:17:21.439 important during the downturn that even though we saw outflows 0:17:21.440 --> 0:17:24.080 out of E t F s broadly, we were continuing 0:17:24.119 --> 0:17:26.880 to see inflows into E s G types of strategies. So, 0:17:27.119 --> 0:17:29.000 you know, I think it's a very important theme that 0:17:29.000 --> 0:17:31.200 that we as the Department of reading a lot about 0:17:31.280 --> 0:17:34.119 and small caps. Obviously there's there's less disclosure there, but 0:17:34.160 --> 0:17:36.600 I think that will continue to increase. Okay, we don't 0:17:36.600 --> 0:17:38.280 do enough of this. Jill carry All, thank you so 0:17:38.359 --> 0:17:44.360 much on small caps. Really really appreciate that. To get 0:17:44.400 --> 0:17:47.680 you through August and into the autumn is James Bianco. 0:17:47.840 --> 0:17:51.800 Jim Bianco writes a wonderfully eclectic note for Bianco Research 0:17:51.800 --> 0:17:54.560 out of Chicago. He is appearing with us only because 0:17:54.560 --> 0:17:58.000 of Chicago Cubs are in first place. Jim Bianco, I 0:17:58.080 --> 0:18:02.199 loved what you said there about about this enigma of 0:18:02.240 --> 0:18:06.920 where tips are give us insight on how unusual these 0:18:06.960 --> 0:18:12.159 inflation adjustice statistics are. The problem is is the Federal 0:18:12.200 --> 0:18:15.480 Reserve is the biggest player in that market. Since March, 0:18:15.520 --> 0:18:19.600 they've bought a quarter trillion dollars worth of tips. And 0:18:19.800 --> 0:18:22.639 if you're looking at the tips market and you're trying 0:18:22.640 --> 0:18:25.840 to discern a signal out of it about the outlook 0:18:25.840 --> 0:18:29.000 for inflation or the outlook for the economy, you have 0:18:29.119 --> 0:18:32.840 to be be careful that it's a bit distorted because 0:18:32.880 --> 0:18:36.720 the biggest buyer is the central Bank. Now it doesn't 0:18:36.720 --> 0:18:39.360 mean that it's it should be ignored or are not 0:18:39.680 --> 0:18:43.600 looked at, but it is become more complicated to try 0:18:43.640 --> 0:18:48.080 and understand it. What other signals have value to consider inflation? 0:18:49.240 --> 0:18:51.520 You know, that's a good question, because you'd have to 0:18:51.600 --> 0:18:54.439 go away from the signals that are not with the 0:18:54.520 --> 0:18:57.840 central bank. The surveys of inflation like the University of 0:18:57.880 --> 0:19:01.960 Michigan survey or the Consumer Confidence survey, or the commodity 0:19:02.000 --> 0:19:05.400 markets themselves, that central banks are playing in those markets 0:19:05.640 --> 0:19:08.639 and those numbers are turning higher and they are expecting 0:19:08.640 --> 0:19:11.639 more inflation as we move forward from here. So there's 0:19:11.680 --> 0:19:15.119 definitely signals on the horizon that inflation is coming. You 0:19:15.160 --> 0:19:17.320 could argue the tips market is saying the same thing, 0:19:17.840 --> 0:19:20.119 but I'd be a little bit careful in over reading 0:19:20.119 --> 0:19:21.879 the tips market. I want to try and rely on 0:19:21.960 --> 0:19:25.280 some of those non market indicators. And good morning to 0:19:25.359 --> 0:19:27.879 Jim talking about other indicators. How confident are you that 0:19:27.920 --> 0:19:30.640 inflation readings We just got some out of the UK 0:19:30.800 --> 0:19:34.600 this morning, inflation a little bit stronger than had been anticipated, 0:19:34.600 --> 0:19:37.480 but that might be short lived. How confident are you 0:19:37.520 --> 0:19:41.320 that inflation readings are giving us accurate information? Given the 0:19:41.359 --> 0:19:44.400 way our spending patterns have shifted so much, the basket 0:19:44.480 --> 0:19:47.640 that the statisticians rely on might not be the basket 0:19:47.680 --> 0:19:51.800 that you and I actually consume. That it's absolutely right 0:19:51.920 --> 0:19:55.440 that you know, in the pandemic, especially to move to online, 0:19:55.800 --> 0:19:58.560 that what we are consuming now is what we weren't 0:19:58.600 --> 0:20:01.360 consuming four or five months ago, so that there could 0:20:01.400 --> 0:20:02.919 be a bit of a distortion. But at the end 0:20:02.920 --> 0:20:05.760 of the day, let's remember what's going on, which is 0:20:05.800 --> 0:20:10.639 the fundamental for pushing inflation higher. We have a higher 0:20:10.720 --> 0:20:14.760 unemployment rate, we have we're producing less stuff because the 0:20:14.800 --> 0:20:17.000 economy is at a lower level than it was a 0:20:17.040 --> 0:20:20.640 few months ago, and we're stimulating the economy by giving 0:20:20.720 --> 0:20:23.679 people either stimulus checks or extra unemployment. I know it 0:20:23.840 --> 0:20:26.080 rolled off in August first, but that might come back, 0:20:26.600 --> 0:20:31.920 and so we've got less supply, we've got demand being stimulated, 0:20:32.000 --> 0:20:35.560 and that, I balance, should lead to higher prices, otherwise 0:20:35.600 --> 0:20:37.800 known as inflation. And I think that that's what a 0:20:37.800 --> 0:20:40.040 lot of the surveys are telling us might be coming. 0:20:40.320 --> 0:20:42.199 But but knowing what we know about the way the 0:20:42.200 --> 0:20:47.600 central banks want to keep costs or keep the costs 0:20:47.600 --> 0:20:51.400 of funding debt low, at this point, do we really 0:20:51.400 --> 0:20:54.920 think that do we really see inflation coming meaningfully? Jim, 0:20:54.920 --> 0:20:56.720 I suppose a lot of people talk about inflation and 0:20:56.760 --> 0:20:58.639 they just mean, you know, we've bounced up, expectations have 0:20:58.680 --> 0:21:00.800 bounced up from the lows of Mars, But that doesn't 0:21:00.800 --> 0:21:03.200 necessarily mean we're off to the races and inflation goes 0:21:03.400 --> 0:21:06.320 much much higher from here. Yeah, you know, that's a 0:21:06.359 --> 0:21:08.520 good point, and I do think that we are going 0:21:08.560 --> 0:21:11.159 to see meaningful inflation, probably in the second half of 0:21:11.200 --> 0:21:14.080 twenty one or in the twenty two as the economy 0:21:14.160 --> 0:21:17.439 strength is an all the stimulus starts to add in 0:21:17.960 --> 0:21:21.359 as well to the central bank, especially the Federal Reserve 0:21:21.480 --> 0:21:24.560 is going to go to something called an average inflation target. 0:21:24.960 --> 0:21:27.560 They're gonna say two percent is not their target, it's 0:21:27.560 --> 0:21:29.800 their average, so they can run it above two percent. 0:21:30.200 --> 0:21:33.040 Bear in mind, they're not gonna change policy one inch. 0:21:33.320 --> 0:21:35.560 They're just going to announce that the target is changed 0:21:36.160 --> 0:21:38.840 as well. Good my, Jim Bianco. This is as rare 0:21:38.880 --> 0:21:40.399 as it can be. This is like when the White 0:21:40.400 --> 0:21:42.960 Sox are better than the Cubs, and that only happens 0:21:43.000 --> 0:21:47.280 once a century. Is there any evidence out there whatsoever 0:21:47.800 --> 0:21:51.639 that governments can reflate an economy, that governments can you know, 0:21:51.720 --> 0:21:55.320 somehow magically make two or two point five or three 0:21:55.359 --> 0:21:59.760 percent inflation appear. No, there's no evidence at all. In fact, 0:22:00.000 --> 0:22:02.440 two and a half three percent inflation at the core level, 0:22:02.520 --> 0:22:04.720 we haven't seen that in thirty years. It was the 0:22:04.760 --> 0:22:08.480 early last and and you know, I get you go 0:22:08.600 --> 0:22:10.760 to the other side of the equation too, if you 0:22:10.880 --> 0:22:13.720 ever got to three percent or maybe a little bit 0:22:13.720 --> 0:22:17.240 more in inflation, there's very little evidence that the governments 0:22:17.280 --> 0:22:19.560 or the central banks could stop it. Okay, they wanted 0:22:19.600 --> 0:22:21.040 to stop it. I mean, I don't want to go 0:22:21.080 --> 0:22:23.320 all Nelly Fox on you here, but let's stay with 0:22:23.320 --> 0:22:25.760 the white sox here right now, just to bust your chops. 0:22:26.040 --> 0:22:29.960 But Jim Bianco, what is so so important here? Is 0:22:30.000 --> 0:22:34.000 the FED in their timeline? Do you just assume their 0:22:34.080 --> 0:22:37.960 timeline is way out past what the zeitgeist is that 0:22:38.040 --> 0:22:41.040 it's twenty three or dare I even say two thousand 0:22:41.080 --> 0:22:44.159 and twenty four. Yeah, I'm gonna go white sex with 0:22:44.200 --> 0:22:46.480 you two. They want to Richie this come run that's 0:22:46.520 --> 0:22:48.480 gonna go into the upper deck and hope they keep 0:22:48.480 --> 0:22:51.720 it rates that zero down to twenty three or twenty four. 0:22:52.040 --> 0:22:54.200 But they're only going to kind of do it one 0:22:54.280 --> 0:22:57.080 meeting at a time. They're gonna give you forward guidance 0:22:57.160 --> 0:23:00.280 there's gonna be no inflation, and then when it's arts 0:23:00.280 --> 0:23:03.080 to percolate and percolate too much, they'll change it and 0:23:03.160 --> 0:23:05.600 Diagnow that's not going to happen right away, but I 0:23:05.680 --> 0:23:08.399 suspect that when all is said and done, they'll be 0:23:08.440 --> 0:23:11.160 moving on inflation a lot sooner than they think, probably 0:23:11.200 --> 0:23:14.440 in a year to eighteen months as opposed to three years. Jim, 0:23:14.560 --> 0:23:16.119