1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,560 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,160 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well. 7 00:00:32,200 --> 00:00:34,920 Speaker 1: In addition to the meeting of the United Nations General 8 00:00:34,960 --> 00:00:40,040 Speaker 1: Assembly week, there is also something called the Sustainable Investment Form. 9 00:00:40,080 --> 00:00:43,360 Speaker 1: It is scheduled for tomorrow at the Crown Plaza Hotel 10 00:00:43,479 --> 00:00:46,520 Speaker 1: here in New York City, and one of the participants 11 00:00:46,640 --> 00:00:49,320 Speaker 1: is our guest, Fred Samama. He is a deputy Global 12 00:00:49,360 --> 00:00:52,559 Speaker 1: head of Institutional and Sovereign Clients at a Mundi And 13 00:00:52,600 --> 00:00:54,520 Speaker 1: for those that may not be familiar with the Mondy, 14 00:00:54,520 --> 00:00:58,040 Speaker 1: I believe it's the largest publicly traded asset manager in 15 00:00:58,120 --> 00:01:01,240 Speaker 1: Europe and it is as out of the combination of 16 00:01:01,240 --> 00:01:06,640 Speaker 1: the asset management business of credit agricole and go ahead 17 00:01:06,640 --> 00:01:09,560 Speaker 1: and suck and yeah, well, okay, you can tell us more. 18 00:01:09,600 --> 00:01:12,280 Speaker 1: Fred Samana, thanks for being here. The reason I wanted 19 00:01:12,319 --> 00:01:14,520 Speaker 1: people to understand about a Munday just a little bit 20 00:01:14,600 --> 00:01:18,400 Speaker 1: is because they reached they purchased pioneer investments I believe 21 00:01:18,400 --> 00:01:21,319 Speaker 1: from UNI credit and so that has really kind of 22 00:01:21,400 --> 00:01:25,440 Speaker 1: changed the profile of a mundy to something that most 23 00:01:25,480 --> 00:01:29,000 Speaker 1: Americans will will sern Louis know about. So I'm wondering 24 00:01:29,000 --> 00:01:33,800 Speaker 1: if you could explain your company's dedication to sustainable UH 25 00:01:33,920 --> 00:01:36,560 Speaker 1: finance initiatives and what are you going to be talking 26 00:01:36,600 --> 00:01:39,640 Speaker 1: about tomorrow. Yes, good morning, and I'm very glad to 27 00:01:39,680 --> 00:01:43,759 Speaker 1: be with you this morning. Um. Sustainable investment is part 28 00:01:43,760 --> 00:01:47,400 Speaker 1: of our DNA. We strongly believe that when you invest 29 00:01:47,440 --> 00:01:50,840 Speaker 1: over the long run, you must integrate these e G 30 00:01:51,000 --> 00:01:54,600 Speaker 1: criteria in your investment process, not only to have a 31 00:01:54,640 --> 00:01:58,040 Speaker 1: positive sorry what kind of criteria e s G. Tell 32 00:01:58,080 --> 00:02:01,440 Speaker 1: people what that is and ther Montal Social and governance 33 00:02:02,240 --> 00:02:06,760 Speaker 1: criteria not only to have a positive impact on society, 34 00:02:06,920 --> 00:02:10,280 Speaker 1: but to manage long term oriented risk as well, because 35 00:02:10,320 --> 00:02:14,839 Speaker 1: we think that this criteria are helping generate returns over 36 00:02:14,880 --> 00:02:16,920 Speaker 1: the long run. So this is this is a crucial 37 00:02:16,960 --> 00:02:20,239 Speaker 1: point because when people talk about sustainable investing out of 38 00:02:20,280 --> 00:02:24,639 Speaker 1: the goodness of your heart, people in the investing universe, 39 00:02:24,720 --> 00:02:26,880 Speaker 1: they want to feel good about themselves with their eyes 40 00:02:26,880 --> 00:02:28,840 Speaker 1: glaze over because it's not their job. Their job is 41 00:02:28,880 --> 00:02:31,160 Speaker 1: to manage risks and their job is to get returns. 42 00:02:31,240 --> 00:02:33,880 Speaker 1: And so what you're saying is that you are showing 43 00:02:33,919 --> 00:02:37,320 Speaker 1: people how they can hedge against some of the economic 44 00:02:37,440 --> 00:02:41,240 Speaker 1: risks of climate change by investing in certain kinds of companies. 45 00:02:41,320 --> 00:02:44,960 Speaker 1: Can you give us an example of companies that investment 46 00:02:44,960 --> 00:02:48,680 Speaker 1: managers would invest in with an eye toward climate change, 47 00:02:48,880 --> 00:02:50,840 Speaker 1: and can you give us a sense of what returns 48 00:02:50,880 --> 00:02:53,720 Speaker 1: have been like to date. You're absolutely right here, we 49 00:02:53,760 --> 00:02:59,280 Speaker 1: are talking about generating um returns over the long run. Conqutely, 50 00:02:59,320 --> 00:03:02,919 Speaker 1: we have in emted for two large European investors a 51 00:03:03,080 --> 00:03:08,320 Speaker 1: P four on low carbon indexes. These indexes are a 52 00:03:08,320 --> 00:03:13,200 Speaker 1: way to decabonize passive investments instruments. It's a way to 53 00:03:13,320 --> 00:03:18,480 Speaker 1: reduce climate change related risks without changing market returns of 54 00:03:18,480 --> 00:03:21,959 Speaker 1: other short runds. How because we do a screening a 55 00:03:22,080 --> 00:03:24,560 Speaker 1: sector per sector, and we will look at the cabin 56 00:03:24,639 --> 00:03:27,760 Speaker 1: food print or how a company is exposed to climate 57 00:03:27,800 --> 00:03:31,960 Speaker 1: change related risks. Concrete example that speaks to everybody. If 58 00:03:32,000 --> 00:03:35,160 Speaker 1: you take the example of the auto car makers. On 59 00:03:35,240 --> 00:03:37,960 Speaker 1: the one hand, you have a company named volves Wagon 60 00:03:38,360 --> 00:03:42,360 Speaker 1: developing softwares in order to to to lie on climate change. 61 00:03:42,680 --> 00:03:45,760 Speaker 1: On the other hand, you have corporates like Toyota or 62 00:03:45,800 --> 00:03:52,800 Speaker 1: Tesla developing cars that are anticipating a shift towards EVS. 63 00:03:52,840 --> 00:03:55,640 Speaker 1: So you can see that for all sectors you actually 64 00:03:55,680 --> 00:04:00,920 Speaker 1: have managements either denying what's happening or autist painting. And 65 00:04:00,960 --> 00:04:04,160 Speaker 1: we strongly believe that it's better to be to be 66 00:04:04,200 --> 00:04:06,880 Speaker 1: invested into the latter ones than in the former ones. 67 00:04:07,160 --> 00:04:10,720 Speaker 1: And the good news is that investors, having started the 68 00:04:10,840 --> 00:04:16,160 Speaker 1: process of using the low carbon indexes, have outperformed before 69 00:04:16,279 --> 00:04:20,599 Speaker 1: a for beating the standout indexes. And now this technology, 70 00:04:20,880 --> 00:04:25,000 Speaker 1: having been developed in Europe, is now spreading around the planet. 71 00:04:25,440 --> 00:04:29,640 Speaker 1: Calster's New York Command Right Tirement Fund, New Zealand Superagnution Fund, 72 00:04:29,839 --> 00:04:33,920 Speaker 1: they're all using this technology in order to reduce their 73 00:04:33,920 --> 00:04:37,520 Speaker 1: climate change related risks, with that impacting their returns or 74 00:04:37,520 --> 00:04:40,279 Speaker 1: the short run. Is that a strategic decision on the 75 00:04:40,320 --> 00:04:42,880 Speaker 1: part of these pension funds that they've decided, I mean, 76 00:04:42,880 --> 00:04:45,880 Speaker 1: as you mentioned, whether it's the New York Common Retirement Fund, 77 00:04:46,040 --> 00:04:50,440 Speaker 1: Unilever's corporate pension fund, is that a strategic position that 78 00:04:50,560 --> 00:04:53,800 Speaker 1: they stake as well that they must pay attention to 79 00:04:53,880 --> 00:04:57,279 Speaker 1: these issues. Absolutely. To take a concrete example, it doesn't 80 00:04:57,279 --> 00:05:00,120 Speaker 1: really even matter whether the money manager believes the this 81 00:05:00,279 --> 00:05:02,839 Speaker 1: is something good to be done out of the goodness 82 00:05:02,839 --> 00:05:06,400 Speaker 1: of everybody's heart. The mandate from the manage, from the 83 00:05:06,480 --> 00:05:09,840 Speaker 1: from the people who actually aren't responsible for the money, 84 00:05:09,880 --> 00:05:15,440 Speaker 1: the pension fund managers. They are telling their potential vendor, Look, 85 00:05:15,560 --> 00:05:18,440 Speaker 1: this is how I want you to invest the money. Correct. 86 00:05:18,839 --> 00:05:22,279 Speaker 1: Concrete example News New Zealand Supernuition Fund and we have 87 00:05:22,320 --> 00:05:25,160 Speaker 1: been speaking to them for four years on this topic. 88 00:05:25,720 --> 00:05:27,839 Speaker 1: They have announced a couple of weeks ago that the 89 00:05:27,880 --> 00:05:32,000 Speaker 1: West switching ten billion dollars of the equity funds towards 90 00:05:32,080 --> 00:05:34,760 Speaker 1: low carbon indexes. So, to make a long story short, 91 00:05:34,839 --> 00:05:37,440 Speaker 1: it's not to look good in an annual report, it's 92 00:05:37,480 --> 00:05:40,080 Speaker 1: not to be on any you know, pictures at the 93 00:05:40,279 --> 00:05:44,640 Speaker 1: UN assemblies. It's really because they believe that here they're 94 00:05:44,680 --> 00:05:48,680 Speaker 1: facing a market figure markets being shot and oriented. They 95 00:05:48,720 --> 00:05:52,919 Speaker 1: don't price correctly the risks associated with climate change, and 96 00:05:52,920 --> 00:05:56,520 Speaker 1: so it becomes their fidusual responsibility to arn aerlie those 97 00:05:56,680 --> 00:05:59,760 Speaker 1: risks and to try to reduce their waitings. It's exactly 98 00:05:59,800 --> 00:06:02,800 Speaker 1: the stage of mc county, the governor of the Bank 99 00:06:02,839 --> 00:06:06,120 Speaker 1: of England says, if you don't integrate climate change rootide 100 00:06:06,200 --> 00:06:11,120 Speaker 1: risks while being a coupled punchion fund manager, you're breaching 101 00:06:11,200 --> 00:06:16,080 Speaker 1: your fidushery responsibility based on worlds. Well, Fred, you know, 102 00:06:16,160 --> 00:06:18,120 Speaker 1: I'd love to get your sense though, because there's been 103 00:06:18,200 --> 00:06:20,760 Speaker 1: there's been some pushback about e s G funds and 104 00:06:20,800 --> 00:06:24,200 Speaker 1: even carbon neutral funds, basically saying, how do you really 105 00:06:24,200 --> 00:06:27,080 Speaker 1: determine that a lot of companies can kind of manipulate 106 00:06:27,440 --> 00:06:30,440 Speaker 1: how they look, but it doesn't really matter that it's 107 00:06:30,480 --> 00:06:34,720 Speaker 1: not really reducing their carbon footprint all that much. You know, 108 00:06:34,760 --> 00:06:38,159 Speaker 1: on e h G um, it's slightly different from cabin 109 00:06:38,279 --> 00:06:41,560 Speaker 1: e h G is differs from one country to the 110 00:06:41,560 --> 00:06:44,360 Speaker 1: other one. To take a contricrete example, if you talk 111 00:06:44,440 --> 00:06:47,400 Speaker 1: about e s G in Japan, it will be all 112 00:06:47,440 --> 00:06:50,680 Speaker 1: about governance. If you talk about e G in China, 113 00:06:50,880 --> 00:06:54,000 Speaker 1: it will be all about climate change. When I'm trying 114 00:06:54,000 --> 00:06:59,039 Speaker 1: to say here it has this world conveys different meanings 115 00:06:59,080 --> 00:07:02,240 Speaker 1: depending on the country is you're in on climate change 116 00:07:02,320 --> 00:07:06,440 Speaker 1: is different. The cabin food print of a Chinese, Japanese, 117 00:07:06,480 --> 00:07:10,960 Speaker 1: or European or US corporate is either same one. How 118 00:07:11,160 --> 00:07:15,120 Speaker 1: polting you are or are you exposed to strongded assets, 119 00:07:15,160 --> 00:07:18,040 Speaker 1: meaning you have asset that could be kept on the ground, 120 00:07:18,440 --> 00:07:22,320 Speaker 1: So it has no um I would say moral values behind. 121 00:07:22,360 --> 00:07:25,840 Speaker 1: It's all about materality and risks of a long run. 122 00:07:26,080 --> 00:07:29,880 Speaker 1: And then for that we have particular pictures which provide 123 00:07:29,920 --> 00:07:32,600 Speaker 1: us having an allied that for for more than one decade. 124 00:07:33,440 --> 00:07:35,040 Speaker 1: You know. Just just briefly, I just wanted to mention 125 00:07:35,040 --> 00:07:38,440 Speaker 1: because we were talking about the New Zealand Superannuation Fund 126 00:07:38,880 --> 00:07:42,280 Speaker 1: and at the time, I believe was Adrian Or at 127 00:07:42,320 --> 00:07:44,240 Speaker 1: the fund who who said that they are still going 128 00:07:44,280 --> 00:07:48,160 Speaker 1: to invest in fossil fuel uh companies, but that they 129 00:07:48,160 --> 00:07:50,800 Speaker 1: don't feel that they're being adequately rewarded for the risk. 130 00:07:50,880 --> 00:07:53,680 Speaker 1: So to your point, and they said they reduced what 131 00:07:53,840 --> 00:07:57,600 Speaker 1: the billion dollar fund exposure to emissions and reserves by 132 00:07:57,600 --> 00:08:00,360 Speaker 1: around twenty percentage. Yeah. That the point that the point 133 00:08:00,440 --> 00:08:02,880 Speaker 1: is not to get rid of fossil fuel companies. The 134 00:08:02,920 --> 00:08:06,800 Speaker 1: point is not to disinvest. Equation is within each industry, 135 00:08:07,280 --> 00:08:12,080 Speaker 1: which corporates our well positioned facing this this shift of society. Yeah, 136 00:08:12,560 --> 00:08:14,680 Speaker 1: Fred's mama, thank you so much for joining us. I 137 00:08:14,760 --> 00:08:16,680 Speaker 1: we could talk to you all afternoon. This is actually 138 00:08:16,720 --> 00:08:19,800 Speaker 1: fascinating and you're raising a two billion dollars in funds 139 00:08:19,800 --> 00:08:22,000 Speaker 1: to create the largest green bond fund for emerging markets. 140 00:08:22,000 --> 00:08:24,840 Speaker 1: Fred's mama, Deputy Global Head of Institutional and Sovereign Clients. 141 00:08:24,840 --> 00:08:39,160 Speaker 1: For a MUNDI let's turn our attention now to what 142 00:08:39,280 --> 00:08:42,040 Speaker 1: to do with your money and some of the world 143 00:08:42,080 --> 00:08:44,760 Speaker 1: strategies that you might employ. Brad McMillan is the Chief 144 00:08:44,840 --> 00:08:48,080 Speaker 1: Investment Office for Commonwealth Financial Network and he joins us 145 00:08:48,120 --> 00:08:51,439 Speaker 1: here in our eleven three oh studio. Brad, always a pleasure, 146 00:08:51,440 --> 00:08:54,959 Speaker 1: Thanks for being here. I'm wondering if, if maybe you 147 00:08:55,040 --> 00:09:00,000 Speaker 1: can describe the importance of let's say a non style 148 00:09:00,520 --> 00:09:03,840 Speaker 1: or uh not fixed income number. And this has to 149 00:09:03,880 --> 00:09:06,200 Speaker 1: do with household income, because I was reading a note 150 00:09:06,240 --> 00:09:08,240 Speaker 1: that you put out a couple of weeks ago, and 151 00:09:08,320 --> 00:09:12,000 Speaker 1: it had to do with paying attention to median household 152 00:09:12,080 --> 00:09:15,360 Speaker 1: income in the United States and what that would mean 153 00:09:15,760 --> 00:09:19,280 Speaker 1: for investors. Tell us about it, well, the point of 154 00:09:19,320 --> 00:09:21,880 Speaker 1: the piece was to talk about the We talk about 155 00:09:21,920 --> 00:09:24,520 Speaker 1: the stock market records, but there are underlying records that 156 00:09:24,559 --> 00:09:27,480 Speaker 1: are much more important when we see where the stock 157 00:09:27,559 --> 00:09:29,920 Speaker 1: market is likely to go, and one of the most 158 00:09:29,960 --> 00:09:33,840 Speaker 1: important ones recently has been household income. Media, household income, 159 00:09:34,160 --> 00:09:37,240 Speaker 1: the household income half the people make more, half make less, 160 00:09:37,640 --> 00:09:39,720 Speaker 1: has actually hit a new record for the first time 161 00:09:39,760 --> 00:09:43,959 Speaker 1: since nine Now think about that for a minute. There's 162 00:09:44,000 --> 00:09:45,839 Speaker 1: there's some good news in there, and there's some bad news. 163 00:09:45,880 --> 00:09:48,360 Speaker 1: The bad news is it took almost a full generation 164 00:09:48,760 --> 00:09:50,960 Speaker 1: to hit a new high. The good news is that 165 00:09:51,000 --> 00:09:53,280 Speaker 1: we have hit a new high, and we've done it 166 00:09:53,320 --> 00:09:56,920 Speaker 1: without a ton of economic growth. So that being the case, 167 00:09:56,960 --> 00:09:59,400 Speaker 1: if we look forward, if we see growth accelerating and 168 00:09:59,440 --> 00:10:02,240 Speaker 1: we may ellen the rest of the year, then that 169 00:10:02,320 --> 00:10:04,400 Speaker 1: actually would mean that wage growth could take up, and 170 00:10:04,679 --> 00:10:08,120 Speaker 1: actually income could get even better. People could spend more, 171 00:10:08,360 --> 00:10:11,040 Speaker 1: and we could move into a positive circle. That would 172 00:10:11,040 --> 00:10:14,360 Speaker 1: be great for the market. So, Brad, it sounds like 173 00:10:14,559 --> 00:10:18,000 Speaker 1: you're bullish right now over the short term, I am. 174 00:10:18,080 --> 00:10:20,199 Speaker 1: I think the markets actually going to do pretty well 175 00:10:20,240 --> 00:10:22,320 Speaker 1: through the rest of the year. I think the signs 176 00:10:22,360 --> 00:10:25,320 Speaker 1: for at least at the start of the year very good. 177 00:10:26,800 --> 00:10:29,360 Speaker 1: I guess I was just gonna In that case, do 178 00:10:29,440 --> 00:10:32,360 Speaker 1: you perceive that companies will spend some of the money 179 00:10:32,360 --> 00:10:36,200 Speaker 1: that they have either raised through bond issues or because 180 00:10:36,200 --> 00:10:40,079 Speaker 1: they've just amassed large cash piles. Will they start spending 181 00:10:40,080 --> 00:10:43,079 Speaker 1: that on something other than share buybacks and dividends. Will 182 00:10:43,120 --> 00:10:45,520 Speaker 1: they spend it on wage increases? Will they spend it 183 00:10:45,559 --> 00:10:49,079 Speaker 1: on technology to make their businesses more productive? I think 184 00:10:49,080 --> 00:10:51,959 Speaker 1: they're gonna have to start spending it on wage increases. 185 00:10:52,120 --> 00:10:55,320 Speaker 1: We're already seeing signs are starting to invest more and 186 00:10:55,400 --> 00:10:59,160 Speaker 1: that actually is the key to future income growth, which 187 00:10:59,240 --> 00:11:01,880 Speaker 1: is increasing more or productivity. That's when one of the 188 00:11:01,920 --> 00:11:04,360 Speaker 1: problems companies are running out of bodies to throw with 189 00:11:04,440 --> 00:11:07,160 Speaker 1: the problem. Now they're going to have to start buying equipment, 190 00:11:07,360 --> 00:11:10,680 Speaker 1: and that's going to be another positive for the economy. Brad, 191 00:11:10,760 --> 00:11:14,000 Speaker 1: At what point are we going to start seeing inflation. 192 00:11:14,120 --> 00:11:16,760 Speaker 1: We're gonna start seeing prices rise, We're gonna start seeing, 193 00:11:17,280 --> 00:11:21,319 Speaker 1: as you said, wages increase. That will lead to higher 194 00:11:21,480 --> 00:11:25,040 Speaker 1: benchmark borrowing costs. And Alan Krueger of Princeton was on 195 00:11:25,080 --> 00:11:28,240 Speaker 1: Bloomberg Television earlier and break. He was talking about how 196 00:11:28,800 --> 00:11:32,400 Speaker 1: he could see a ten year treasury yields rising to 197 00:11:32,480 --> 00:11:35,040 Speaker 1: four percent pretty quickly if we start to see that, 198 00:11:35,200 --> 00:11:37,640 Speaker 1: Do you agree and how disruptive would that be? I 199 00:11:37,679 --> 00:11:40,400 Speaker 1: do agree with that, because right now we've had very 200 00:11:40,400 --> 00:11:42,839 Speaker 1: little inflation, and the assumption is what's never going to 201 00:11:42,920 --> 00:11:44,960 Speaker 1: show up I think that when it shows up, it'll 202 00:11:44,960 --> 00:11:47,079 Speaker 1: show up faster than people think, and that could well 203 00:11:47,120 --> 00:11:50,000 Speaker 1: be in the next eighteen months. Now that that's the case, 204 00:11:50,480 --> 00:11:53,880 Speaker 1: And what kind of inflation? What are we talking about? Energy, food, 205 00:11:54,240 --> 00:11:57,360 Speaker 1: home prices? What kind across the board. One of the 206 00:11:57,360 --> 00:12:00,240 Speaker 1: reasons we've had low inflation is because wage growth has 207 00:12:00,240 --> 00:12:03,960 Speaker 1: been so constrained. Wage growth feeds into everything else. We've 208 00:12:03,960 --> 00:12:06,480 Speaker 1: had a number of things getting cheaper and cheaper. We've 209 00:12:06,480 --> 00:12:09,760 Speaker 1: had cars. Globalization is continuing to work its way. But 210 00:12:09,800 --> 00:12:12,319 Speaker 1: why is that connect? In other words, maybe I'm getting 211 00:12:12,320 --> 00:12:16,280 Speaker 1: the wrong. Wages have not, as you said, waited a 212 00:12:16,360 --> 00:12:20,400 Speaker 1: long time for wages to come back. Wages rise, but 213 00:12:20,480 --> 00:12:22,520 Speaker 1: that doesn't necessarily mean the prices are going to go up. 214 00:12:22,559 --> 00:12:24,480 Speaker 1: I thought inflated. One of the reasons that inflation has 215 00:12:24,480 --> 00:12:26,720 Speaker 1: been held in check is because every time you turn around, 216 00:12:26,760 --> 00:12:30,199 Speaker 1: someone else's vent invented the same thing for less money, 217 00:12:30,240 --> 00:12:33,600 Speaker 1: deliver it to you faster, like an Amazon for example. Well, 218 00:12:33,640 --> 00:12:35,200 Speaker 1: you can look at it a couple of different ways. 219 00:12:35,200 --> 00:12:36,840 Speaker 1: You can look at it as a company and say, 220 00:12:36,880 --> 00:12:38,640 Speaker 1: if I have to pay more wages now, either I'm 221 00:12:38,640 --> 00:12:41,679 Speaker 1: going to make less money or I have to raise prices. 222 00:12:41,720 --> 00:12:44,079 Speaker 1: That's where price increases come from, from a cost in 223 00:12:44,120 --> 00:12:47,800 Speaker 1: the inputs or because there's just not enough capacity. Companies say, 224 00:12:47,840 --> 00:12:50,160 Speaker 1: you know what, I can't make enough to sell all 225 00:12:50,200 --> 00:12:52,160 Speaker 1: I need, so I'm just gonna raise prices and match 226 00:12:52,280 --> 00:12:55,160 Speaker 1: my production with the demand at the higher price. That 227 00:12:55,240 --> 00:12:57,640 Speaker 1: being the case, you can see those dynamics start to 228 00:12:57,679 --> 00:13:01,880 Speaker 1: set up in place, and that's what would generate the inflation. Brad. 229 00:13:02,360 --> 00:13:05,000 Speaker 1: If if you could see ten year treasury yields, which 230 00:13:05,040 --> 00:13:08,640 Speaker 1: are now about twenty basis points over two, rising to 231 00:13:08,760 --> 00:13:12,360 Speaker 1: four percent over the next eighteen months, conceivably, if we 232 00:13:12,400 --> 00:13:15,800 Speaker 1: start to see uh sort of increase in wages and inflation, 233 00:13:16,320 --> 00:13:19,080 Speaker 1: what would that do to stock markets? Well, it would 234 00:13:19,120 --> 00:13:21,040 Speaker 1: do something bad to the economy, and it could do 235 00:13:21,120 --> 00:13:23,560 Speaker 1: something worse to markets. I mean, the one thing that 236 00:13:23,640 --> 00:13:26,720 Speaker 1: really causes a stock market pullback a big one, is 237 00:13:26,720 --> 00:13:29,560 Speaker 1: a recession, and rising rates is one of the key 238 00:13:29,600 --> 00:13:32,439 Speaker 1: indicators of a recession. If you look at all of 239 00:13:32,480 --> 00:13:34,960 Speaker 1: the major indicators. We're fine right now. We're fine for 240 00:13:35,000 --> 00:13:37,280 Speaker 1: the next twelve months or so, but sometime in the 241 00:13:37,320 --> 00:13:39,559 Speaker 1: next couple of years we are going to have a recession, 242 00:13:39,800 --> 00:13:42,040 Speaker 1: and that could be one of the causal factors. So 243 00:13:42,080 --> 00:13:45,800 Speaker 1: in other words, if things accelerate meaningfully more, that will 244 00:13:45,840 --> 00:13:48,839 Speaker 1: put us much closer to a recession. It could. Yes, 245 00:13:50,200 --> 00:13:53,040 Speaker 1: are you calling for one? And what two years? I think? 246 00:13:53,120 --> 00:13:55,079 Speaker 1: I think the next eight to twenty four months. It's 247 00:13:55,120 --> 00:13:59,240 Speaker 1: quite possible. I do a monthly I track significant factors 248 00:13:59,240 --> 00:14:01,080 Speaker 1: on my blog every months. Right now, we're still in 249 00:14:01,120 --> 00:14:03,880 Speaker 1: the green light zone, but you can actually see the 250 00:14:03,920 --> 00:14:07,760 Speaker 1: decay and for example, hiring trends. We're on a downward path. 251 00:14:07,840 --> 00:14:10,480 Speaker 1: Things are slowing down and somewhere in the next year 252 00:14:10,559 --> 00:14:12,520 Speaker 1: or two that can hit The trouble is that is 253 00:14:12,520 --> 00:14:15,599 Speaker 1: that hiring slowing down because it just quickly because the technology, 254 00:14:15,679 --> 00:14:17,839 Speaker 1: or not just because of the economy, just because we're 255 00:14:17,880 --> 00:14:20,760 Speaker 1: running out of people. All right, that's the simple part. 256 00:14:20,800 --> 00:14:23,520 Speaker 1: We don't have enough workers. Brad McMillan, thank you so 257 00:14:23,600 --> 00:14:26,600 Speaker 1: much for joining us. Brid mcbillan, chief Investment Officer for 258 00:14:26,720 --> 00:14:30,680 Speaker 1: Commonwealth Financial Network, overseeing ussets of a hundred and fourteen 259 00:14:30,880 --> 00:14:35,480 Speaker 1: billion dollars and based in Waltham, Massachusetts. Uh. This is 260 00:14:35,600 --> 00:14:38,240 Speaker 1: this is a very important issue and you raise an 261 00:14:38,280 --> 00:14:41,840 Speaker 1: incredibly interesting point. Even though investors have pretty much dismissed 262 00:14:41,840 --> 00:14:44,920 Speaker 1: the idea of higher rates. Some are still saying they 263 00:14:44,960 --> 00:14:59,000 Speaker 1: are near. We want to focus now on the aftermath 264 00:14:59,040 --> 00:15:03,640 Speaker 1: the economic sequences of natural disasters such as Hurricane Irma 265 00:15:03,800 --> 00:15:07,440 Speaker 1: Hurricane Harvey. Joining us Brian Eger, a senior Gaming and 266 00:15:07,480 --> 00:15:11,440 Speaker 1: lodging analyst for Bloomberg Intelligence. Brian, thanks for joining us. 267 00:15:11,440 --> 00:15:14,840 Speaker 1: Here's our studio. UM. I understand that if Florida had 268 00:15:14,960 --> 00:15:18,600 Speaker 1: the hospitality and tourism industry in Florida is worth about 269 00:15:18,800 --> 00:15:24,080 Speaker 1: ninety billion dollars UH, and the storm took a direct 270 00:15:24,160 --> 00:15:26,840 Speaker 1: hit on that, and I'm wondering if you could tell 271 00:15:26,920 --> 00:15:32,640 Speaker 1: us the effects, but also how outsized are the ramifications. 272 00:15:32,720 --> 00:15:36,200 Speaker 1: Is it unusual because we know hurricane season exists and 273 00:15:36,240 --> 00:15:38,520 Speaker 1: we know that you know, many businesses try to prepare 274 00:15:38,560 --> 00:15:41,920 Speaker 1: for it. So Florida is about the twelfth largest hotel 275 00:15:41,960 --> 00:15:44,120 Speaker 1: market in the US in terms of room supply. It's 276 00:15:44,160 --> 00:15:47,920 Speaker 1: also a very big cruise deployment market, as you might 277 00:15:47,960 --> 00:15:50,680 Speaker 1: expect about about a annywhere from a third to a 278 00:15:50,680 --> 00:15:54,280 Speaker 1: half of these cruise lines capacity is deployed in the Caribbeans. 279 00:15:54,320 --> 00:15:57,760 Speaker 1: So the potential for disruption exists. Fortunately, I would say 280 00:15:57,800 --> 00:16:00,480 Speaker 1: with respect to Irma, UH, this storm could have been 281 00:16:00,480 --> 00:16:03,680 Speaker 1: far worse in terms of its lingering impact. You know, 282 00:16:03,720 --> 00:16:05,800 Speaker 1: I have to wonder just in general though, with the 283 00:16:05,880 --> 00:16:09,400 Speaker 1: clean up, with this unpredictability, with this feeling that one 284 00:16:09,520 --> 00:16:12,760 Speaker 1: hurricane after another just keep slamming in the same area, 285 00:16:13,280 --> 00:16:16,520 Speaker 1: is there going to be a long term dampening effect 286 00:16:16,960 --> 00:16:20,320 Speaker 1: on demand for some of these cruise lines as well 287 00:16:20,320 --> 00:16:23,280 Speaker 1: as frankly some of the hotels that are in on 288 00:16:23,360 --> 00:16:25,320 Speaker 1: the coast in Florida. Well, I think for cruise lines 289 00:16:25,320 --> 00:16:29,200 Speaker 1: you have to pass between disruption of cruises versus damage 290 00:16:29,280 --> 00:16:34,120 Speaker 1: to cruise ports. Because cruise ships are are maneuverable assets. 291 00:16:34,160 --> 00:16:37,000 Speaker 1: You can redeploy them. So you know, the twenty five 292 00:16:37,120 --> 00:16:41,000 Speaker 1: or so kore imports resssessments I've seen, or about a 293 00:16:41,040 --> 00:16:43,560 Speaker 1: dozen or open, some other half dozen or closed. The 294 00:16:43,600 --> 00:16:47,600 Speaker 1: rest are pending reassessments. Now, there were a number of cancelations. 295 00:16:47,600 --> 00:16:51,520 Speaker 1: By some estimates, about ten cruises were canceled, ten were 296 00:16:51,840 --> 00:16:54,640 Speaker 1: delayed as a result of this, and that does result 297 00:16:54,680 --> 00:16:58,160 Speaker 1: in some uh necessary maneuving on maneuvering on the part 298 00:16:58,200 --> 00:17:01,000 Speaker 1: of cruise lines. But you know, the difference you have 299 00:17:01,040 --> 00:17:03,320 Speaker 1: to pass between is what happens with the ports now, 300 00:17:03,400 --> 00:17:09,480 Speaker 1: for um, for cruises in the Caribbean, once possible beneficiary 301 00:17:09,520 --> 00:17:12,199 Speaker 1: in a in a perverse sense might be Mexico, the 302 00:17:12,240 --> 00:17:16,080 Speaker 1: Mexican Yucatan Peninsula. There are three cruise ports there which 303 00:17:16,080 --> 00:17:19,159 Speaker 1: are likely to see more arrivals because a lot of 304 00:17:19,280 --> 00:17:22,800 Speaker 1: Eastern Caribbean cruises which might be canceled they're disrupted, might 305 00:17:22,840 --> 00:17:28,720 Speaker 1: get redeployed there because considerably less damage in places like Cosmo. Well, 306 00:17:28,760 --> 00:17:32,400 Speaker 1: I understand that the tourism officials in the Caribbean are 307 00:17:32,560 --> 00:17:36,960 Speaker 1: still trying to assess the damage that you've certainly got 308 00:17:37,040 --> 00:17:40,239 Speaker 1: situation where Royal Caribbean said the future sailings aren't even 309 00:17:40,280 --> 00:17:42,600 Speaker 1: going to stop at the ports in Saint Martin, St. 310 00:17:42,600 --> 00:17:46,720 Speaker 1: Thomas or Key West until the islands have recovered. That's 311 00:17:46,720 --> 00:17:49,600 Speaker 1: exactly it is. As you know, of the or so 312 00:17:49,640 --> 00:17:53,480 Speaker 1: odd some odd ports in the Caribbean, um as I said, 313 00:17:53,600 --> 00:17:55,760 Speaker 1: about half are open, but the rest and they're in 314 00:17:55,880 --> 00:18:01,600 Speaker 1: some transitional state of reevaluation and UH and damage assessment 315 00:18:01,720 --> 00:18:05,080 Speaker 1: or actually being closed. And that does UH push a 316 00:18:05,119 --> 00:18:06,800 Speaker 1: lot of that traffic that might have gone to the 317 00:18:06,800 --> 00:18:10,280 Speaker 1: Eastern Caribbean to the Western Caribbean, some very desirable destinations 318 00:18:10,280 --> 00:18:12,600 Speaker 1: they are, no doubt, but that is a source of 319 00:18:12,640 --> 00:18:14,960 Speaker 1: disruption and if you're on one of those cruises that 320 00:18:15,040 --> 00:18:17,960 Speaker 1: got canceled because of the last hurricane UH, you would 321 00:18:17,960 --> 00:18:21,000 Speaker 1: get a full refund and a partial credit towards the 322 00:18:21,040 --> 00:18:23,960 Speaker 1: future cruise. So there are some ways that cruise lines 323 00:18:24,000 --> 00:18:26,359 Speaker 1: try to make it up to affect the passengers in 324 00:18:26,480 --> 00:18:29,240 Speaker 1: terms of their policies. Have we already gotten any guidance 325 00:18:29,320 --> 00:18:32,800 Speaker 1: from Carnival, Royal Caribbean, Norwegian Cruise Line about how much 326 00:18:32,800 --> 00:18:35,240 Speaker 1: of a hit this will cause UH to their third 327 00:18:35,280 --> 00:18:37,919 Speaker 1: quarter earnings? We have not yet, although Carnival will like 328 00:18:38,119 --> 00:18:40,840 Speaker 1: report their earnings within in the next two weeks, perhaps 329 00:18:40,880 --> 00:18:43,920 Speaker 1: next week, because they just finished their August quarter. UM. 330 00:18:43,960 --> 00:18:46,800 Speaker 1: You know, very often in some past storms that disruption 331 00:18:46,800 --> 00:18:49,440 Speaker 1: in terms of an earnings per share impact has been 332 00:18:49,480 --> 00:18:52,399 Speaker 1: relatively manageable. I mean, when Hurricane Sandy came about in 333 00:18:53,720 --> 00:18:57,840 Speaker 1: it affected um UH annual earnings per share for companies 334 00:18:57,880 --> 00:19:00,119 Speaker 1: like Royal Caribbean by about two cents per shares. So 335 00:19:00,359 --> 00:19:02,359 Speaker 1: there might very well be some impact in terms of 336 00:19:03,000 --> 00:19:07,080 Speaker 1: UH cost of issuing vouchers or some disruption or operational costs, 337 00:19:07,480 --> 00:19:10,119 Speaker 1: but historically pretty manageable. Well, but you know, there's a 338 00:19:10,119 --> 00:19:14,520 Speaker 1: difference between the immediate costs and say the cost of 339 00:19:14,840 --> 00:19:16,879 Speaker 1: not really being able to land at a port, and 340 00:19:16,960 --> 00:19:20,600 Speaker 1: we're not really having clients that want to passengers that 341 00:19:20,680 --> 00:19:23,320 Speaker 1: want to go to an island that has been decimated 342 00:19:23,359 --> 00:19:26,000 Speaker 1: by a hurricane and doesn't even have lodging or things 343 00:19:26,040 --> 00:19:28,120 Speaker 1: to see, right, I mean, and is there some kind 344 00:19:28,119 --> 00:19:30,720 Speaker 1: of sense of what that impact could be. We don't 345 00:19:30,720 --> 00:19:33,399 Speaker 1: know yet. I mean, certainly for Eastern Caribbean ports, for 346 00:19:33,440 --> 00:19:36,200 Speaker 1: the US Vision Islands, for Martin's Islands like Save Martin, 347 00:19:36,280 --> 00:19:39,919 Speaker 1: which are popular cruise destinations. We have the reality of 348 00:19:40,000 --> 00:19:44,320 Speaker 1: ongoing economic and infrastructure damage and damage to ports. Uh 349 00:19:44,640 --> 00:19:47,280 Speaker 1: and I said, just as some of the Chinese cruises 350 00:19:47,280 --> 00:19:50,919 Speaker 1: were rerouted from South Korea to Japan, so some of 351 00:19:50,920 --> 00:19:53,359 Speaker 1: these Caribbean cruises might have been rerouted from the Eastern 352 00:19:53,359 --> 00:19:56,239 Speaker 1: Caribbean to the Western Caribbean. It's not ideal, um, it 353 00:19:56,280 --> 00:19:58,959 Speaker 1: happens every year. I think part of the issue will be, 354 00:19:59,400 --> 00:20:01,080 Speaker 1: or what we're watch is whether or not there will 355 00:20:01,119 --> 00:20:04,120 Speaker 1: be more hurricanes for the remainder of this season, which 356 00:20:04,160 --> 00:20:07,600 Speaker 1: could further either disrupt cruises or cause damage. But at 357 00:20:07,640 --> 00:20:10,080 Speaker 1: least for this storm, as bad as it was, things 358 00:20:10,080 --> 00:20:12,320 Speaker 1: could have been far worse. Brian just to get trying 359 00:20:12,320 --> 00:20:15,240 Speaker 1: to get an update the Keys, the Florida Keys Monroe 360 00:20:15,320 --> 00:20:19,439 Speaker 1: County UH, saying that there's no fuel, no electricity, no 361 00:20:19,600 --> 00:20:23,440 Speaker 1: running water, no cell service, general aviation at key West 362 00:20:23,440 --> 00:20:28,359 Speaker 1: International as well as Florida Keys Marathon International they're closed. UH. 363 00:20:28,400 --> 00:20:30,600 Speaker 1: Any estimates how long it's going to be before this 364 00:20:30,680 --> 00:20:32,760 Speaker 1: is up and running really don't know. I will tell 365 00:20:32,800 --> 00:20:34,479 Speaker 1: you that if you look at a one week impact, 366 00:20:34,560 --> 00:20:37,240 Speaker 1: for example, that the hotel industry centered or not Miami, 367 00:20:37,640 --> 00:20:40,000 Speaker 1: there was indeed an effect. If you look at aupans 368 00:20:40,200 --> 00:20:43,520 Speaker 1: rates or revenue per available room, those metrics are down 369 00:20:43,560 --> 00:20:46,359 Speaker 1: thirty to thirty five percent year of a year for 370 00:20:46,400 --> 00:20:50,199 Speaker 1: the weekended um UH September ninth. Now, of course if 371 00:20:50,240 --> 00:20:52,439 Speaker 1: you roll out over a four week period, things are 372 00:20:52,440 --> 00:20:56,120 Speaker 1: pretty flat, but certainly the hotel industry there no doubt 373 00:20:56,200 --> 00:20:58,879 Speaker 1: took a hit. Brianger, thank you so much for joining us. 374 00:20:58,880 --> 00:21:02,639 Speaker 1: Brian Eger, a senior game and lodging analysts for Bloomberg Intelligence, 375 00:21:02,680 --> 00:21:05,800 Speaker 1: joining us here in our Bloomberg eleven three oh studios, 376 00:21:05,800 --> 00:21:08,239 Speaker 1: and we have seen a hit to those shares of 377 00:21:08,400 --> 00:21:10,920 Speaker 1: cruise liners, and there's a question of whether they will 378 00:21:10,960 --> 00:21:25,480 Speaker 1: rebound as people reassess there is a growing chorus that 379 00:21:25,560 --> 00:21:28,000 Speaker 1: perhaps markets are too sanguine about this. I want to 380 00:21:28,000 --> 00:21:30,080 Speaker 1: bring in Jack Ablin to weigh in on this. Jack 381 00:21:30,119 --> 00:21:33,640 Speaker 1: Avelin as chief investment Officer of BEMO Private Bank overseeing 382 00:21:33,640 --> 00:21:37,520 Speaker 1: about sixty eight billion dollars of assets from Chicago. Jack, 383 00:21:37,560 --> 00:21:40,360 Speaker 1: thank you so much for joining us earlier in the program. 384 00:21:40,359 --> 00:21:43,359 Speaker 1: Brad McMillan of Commonwealth Financial Network, so that there was 385 00:21:43,400 --> 00:21:48,720 Speaker 1: a real likelihood that benchmark treasury yields could rise substantially 386 00:21:48,760 --> 00:21:53,280 Speaker 1: over the next eighteen months to two years and spur recession. 387 00:21:54,080 --> 00:21:58,960 Speaker 1: Do you agree, Um, You know, we are in that 388 00:21:59,040 --> 00:22:01,800 Speaker 1: point of the business cycle where we're kind of reaching 389 00:22:01,840 --> 00:22:07,919 Speaker 1: that full capacity, and so perhaps moving toward a higher 390 00:22:08,000 --> 00:22:13,160 Speaker 1: rates slower growth in the future is certainly a possibility. Jack. 391 00:22:13,640 --> 00:22:16,320 Speaker 1: Can I just turn your attention to obviously, this ongoing 392 00:22:16,840 --> 00:22:20,960 Speaker 1: issue of North Korea. It's nuclear ambitions and test firing 393 00:22:21,000 --> 00:22:25,000 Speaker 1: of these ballistic missiles. I understand it's terrible, and you know, 394 00:22:25,560 --> 00:22:28,200 Speaker 1: world leaders are spending their time trying to figure out 395 00:22:28,240 --> 00:22:32,080 Speaker 1: what to do about it. If something untoward were to happen, 396 00:22:32,720 --> 00:22:35,399 Speaker 1: Why would that be such a direct connection to what 397 00:22:35,520 --> 00:22:39,040 Speaker 1: happens to the stock market, Well, you know, it's interesting. 398 00:22:39,080 --> 00:22:42,000 Speaker 1: I did write a note about North Korea this morning, Pim, 399 00:22:42,040 --> 00:22:45,080 Speaker 1: and my focus is, let's not worry or now, let's 400 00:22:45,119 --> 00:22:48,720 Speaker 1: not focus so much on Kim June un. Let's let's 401 00:22:48,720 --> 00:22:52,040 Speaker 1: look at President she. I think it's really China certainly 402 00:22:52,080 --> 00:22:55,239 Speaker 1: holds the cards here, and our bottom line is, as 403 00:22:55,320 --> 00:22:58,919 Speaker 1: long as China is concerned, not concerned, we shouldn't be 404 00:22:58,960 --> 00:23:02,600 Speaker 1: concerned because really, in many respects, North Korea and China 405 00:23:02,680 --> 00:23:07,240 Speaker 1: share a number of political priorities, and as long as 406 00:23:07,880 --> 00:23:12,320 Speaker 1: Kim John un operates within those shared priorities, China is 407 00:23:12,320 --> 00:23:14,240 Speaker 1: gonna go ahead and let him flap his arms and 408 00:23:14,280 --> 00:23:17,200 Speaker 1: do whatever he's gonna do. Should he start to move 409 00:23:17,240 --> 00:23:21,520 Speaker 1: outside of that realm, perhaps if China sense that he 410 00:23:21,600 --> 00:23:25,400 Speaker 1: would launch an unprovoked attack, then I think they would intervene. 411 00:23:25,440 --> 00:23:27,760 Speaker 1: But for right now, I don't I don't see uh, 412 00:23:27,880 --> 00:23:31,119 Speaker 1: I don't see that happening. So right now, what is 413 00:23:31,160 --> 00:23:35,560 Speaker 1: the biggest concern as far as disrupting this record rally 414 00:23:35,600 --> 00:23:38,439 Speaker 1: that we're saying us stuff. I think it's really just 415 00:23:38,520 --> 00:23:42,880 Speaker 1: gonna be um. You know, obviously you know those unknowns 416 00:23:42,880 --> 00:23:46,760 Speaker 1: are outside my scope, but I will say, you know 417 00:23:46,960 --> 00:23:49,240 Speaker 1: it's going to be monetary policy. The fact is that 418 00:23:49,280 --> 00:23:52,719 Speaker 1: it's been easy policy and quantitative easing that got us 419 00:23:53,000 --> 00:23:55,360 Speaker 1: a lot of the way from two thousand nine till 420 00:23:55,440 --> 00:23:58,919 Speaker 1: where we are today. Uh. And it's possible that quantitative 421 00:23:58,960 --> 00:24:03,479 Speaker 1: tightening and a reversal of those moves. Um, could you know, 422 00:24:04,000 --> 00:24:08,720 Speaker 1: UM at least pamp some of that enthusiasm that we've had. Well, 423 00:24:08,880 --> 00:24:11,120 Speaker 1: and Jack, I guess the FED is made very clear 424 00:24:11,160 --> 00:24:13,080 Speaker 1: that it's not going to raise rates at a at 425 00:24:13,080 --> 00:24:17,280 Speaker 1: a fast pace unless they see some material economic growth 426 00:24:17,320 --> 00:24:20,400 Speaker 1: and inflation. In particular, what are the chances in your 427 00:24:20,680 --> 00:24:24,920 Speaker 1: mind that we do get more material inflation, more material wages, 428 00:24:25,520 --> 00:24:28,880 Speaker 1: wage increases that would lead to a more rapid rise 429 00:24:28,880 --> 00:24:33,960 Speaker 1: in benchmark borrowing costs. Yeah, I would say, Um, you're right. Um, 430 00:24:34,040 --> 00:24:38,120 Speaker 1: you know, on paper, I would say the Fed does 431 00:24:38,160 --> 00:24:41,800 Speaker 1: not have enough evidence currently um to really start to 432 00:24:41,800 --> 00:24:47,119 Speaker 1: restrict things race rates or really um reduce the balance sheet. Um. 433 00:24:47,359 --> 00:24:51,880 Speaker 1: Certainly not both. But given that that m chairwoman yelling 434 00:24:52,000 --> 00:24:54,800 Speaker 1: expects that she will not be reappointed, nor she may 435 00:24:54,800 --> 00:24:58,720 Speaker 1: not even take the position if she was offered it, Um, 436 00:24:58,840 --> 00:25:01,840 Speaker 1: she may want to do kind of a what what 437 00:25:01,920 --> 00:25:04,919 Speaker 1: Bernickey tried to do and just create some closure on 438 00:25:04,960 --> 00:25:08,679 Speaker 1: a strategy that she uh. Maybe she didn't open up herself, 439 00:25:08,680 --> 00:25:12,840 Speaker 1: but she certainly perpetuated, So there could be a motivation 440 00:25:12,920 --> 00:25:17,399 Speaker 1: to start something that, you know, all other things being equal, 441 00:25:17,520 --> 00:25:20,920 Speaker 1: she wouldn't have done on her own. Um that said, 442 00:25:20,960 --> 00:25:23,480 Speaker 1: you know, I think that you're right. I mean, we 443 00:25:23,560 --> 00:25:27,280 Speaker 1: could see some UH inflation pressure down the line. We haven't. 444 00:25:27,440 --> 00:25:30,480 Speaker 1: I would have expected to see, for example, three percent 445 00:25:30,680 --> 00:25:33,760 Speaker 1: wage growth by the end of this year, and we're 446 00:25:33,800 --> 00:25:36,639 Speaker 1: not close to that yet, but eventually it will happen, 447 00:25:36,720 --> 00:25:40,240 Speaker 1: and that's part of the business cycle. So I expect that, 448 00:25:41,000 --> 00:25:44,320 Speaker 1: you know, we can continue on this nice, steady path 449 00:25:44,440 --> 00:25:49,399 Speaker 1: higher probably through UH the first quarter, easily into two 450 00:25:49,440 --> 00:25:52,560 Speaker 1: thousand and eighteen. Then as um some of this inflation 451 00:25:52,640 --> 00:25:55,720 Speaker 1: data comes through, we start to see some higher rates. Um. 452 00:25:55,840 --> 00:25:58,480 Speaker 1: The second half of a team could be problematic for 453 00:25:58,520 --> 00:26:04,760 Speaker 1: equity investing. Does Jack Avelin believe that US equities are expensive? Yeah, 454 00:26:04,800 --> 00:26:08,920 Speaker 1: I believe they're expensive. The only lens you can peer 455 00:26:09,040 --> 00:26:13,639 Speaker 1: through too and squint to make them look cheap is 456 00:26:13,680 --> 00:26:15,960 Speaker 1: through the lens of bonds. If you take, for example, 457 00:26:16,000 --> 00:26:19,280 Speaker 1: the earnings yield. Historically the earnings yield, which is just 458 00:26:19,320 --> 00:26:23,560 Speaker 1: the reciprocal of the pe ratio and the triple B 459 00:26:23,880 --> 00:26:26,600 Speaker 1: pen your bond yield have been identical. They moved in 460 00:26:26,720 --> 00:26:29,879 Speaker 1: tandem on top of one another for decades. That was 461 00:26:30,000 --> 00:26:33,159 Speaker 1: until two thousand nine when they split apart. Right now, 462 00:26:33,359 --> 00:26:36,879 Speaker 1: the earnings yield is about one point six percent higher 463 00:26:37,600 --> 00:26:40,200 Speaker 1: than the earnings than the triple B bond yield. So 464 00:26:40,600 --> 00:26:46,680 Speaker 1: perhaps for those investors who are looking for some rationale 465 00:26:46,760 --> 00:26:50,160 Speaker 1: for jumping into the market, that would be it. So Jack, 466 00:26:50,320 --> 00:26:52,600 Speaker 1: it sounds like you think bonds are the most expensive 467 00:26:52,720 --> 00:26:55,400 Speaker 1: part of the market right now. US government bonds in particular, 468 00:26:56,240 --> 00:26:59,119 Speaker 1: I do. I have a very difficult time with it. Really, 469 00:26:59,160 --> 00:27:03,680 Speaker 1: the only um real use for them is is really 470 00:27:03,680 --> 00:27:06,040 Speaker 1: as a hedge. You know, if you felt that, you 471 00:27:06,080 --> 00:27:08,359 Speaker 1: know this is our this is our main scenario. But 472 00:27:08,400 --> 00:27:10,520 Speaker 1: if we're wrong, you know, we want to have something 473 00:27:10,560 --> 00:27:14,360 Speaker 1: to offset. But you know that really hasn't hasn't played out. 474 00:27:14,520 --> 00:27:20,120 Speaker 1: I will say interestingly, Um, this last quarter, high quality 475 00:27:20,160 --> 00:27:24,800 Speaker 1: corporate bonds outperform high yield bonds, So we may start 476 00:27:24,840 --> 00:27:29,119 Speaker 1: to see a turn in the credit cycle, and that 477 00:27:29,200 --> 00:27:32,480 Speaker 1: tends to go earlier than equities themselves, And that's something 478 00:27:32,520 --> 00:27:34,920 Speaker 1: we're just starting to watch although it's sort of interesting 479 00:27:34,960 --> 00:27:37,320 Speaker 1: because in the latest Bank of America Mary Lynch Fund 480 00:27:37,320 --> 00:27:40,399 Speaker 1: Manager survey for September, they actually showed that there are 481 00:27:40,400 --> 00:27:43,320 Speaker 1: a greater number of investors who are going underweight investment 482 00:27:43,359 --> 00:27:46,480 Speaker 1: grade in going more heavily waited towards high yield. So 483 00:27:46,640 --> 00:27:48,840 Speaker 1: it doesn't you know, it sort of means perhaps that 484 00:27:48,840 --> 00:27:51,080 Speaker 1: people got a little overly enthusiastic with investment grade and 485 00:27:51,080 --> 00:27:53,280 Speaker 1: now they're sort of shifting back, which is I thought 486 00:27:53,280 --> 00:27:56,000 Speaker 1: it was kind of interesting. Yeah, I mean that that 487 00:27:56,080 --> 00:27:58,359 Speaker 1: could be, Like I said, it's it's not enough of 488 00:27:58,359 --> 00:28:01,680 Speaker 1: a trend yet. Um, if we start to see high 489 00:28:01,760 --> 00:28:06,439 Speaker 1: quality bonds continually outperform high yield, and that's possible given 490 00:28:06,800 --> 00:28:09,480 Speaker 1: that where credit spreads are currently set, I mean they're 491 00:28:09,520 --> 00:28:13,040 Speaker 1: so low, Um, that could be an indication. And it was. 492 00:28:13,080 --> 00:28:16,120 Speaker 1: I mean, if you go back to the last financial crisis, 493 00:28:17,040 --> 00:28:21,919 Speaker 1: we saw credit spreads widen four quarters before. Uh it 494 00:28:22,040 --> 00:28:24,800 Speaker 1: was the fourth quarter two thousand seven, so it certainly 495 00:28:24,880 --> 00:28:28,320 Speaker 1: gave us a long warning period for two thousand and eight. 496 00:28:28,720 --> 00:28:31,240 Speaker 1: Thanks very much for spending time with us. Jack Avelin 497 00:28:31,320 --> 00:28:35,359 Speaker 1: is always chief Investment Officer be MO Private Bank, helping 498 00:28:35,400 --> 00:28:39,680 Speaker 1: to manage approximately sixty eight billion dollars of client assets. 499 00:28:39,760 --> 00:28:45,240 Speaker 1: Based in Chicago. Thanks for listening to the Bloomberg P 500 00:28:45,360 --> 00:28:48,360 Speaker 1: and L podcast. You can subscribe and listen to interviews 501 00:28:48,360 --> 00:28:52,440 Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 502 00:28:52,840 --> 00:28:56,400 Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm 503 00:28:56,440 --> 00:28:59,800 Speaker 1: on Twitter at Lisa abramowits one before the podcast. You 504 00:28:59,800 --> 00:29:02,360 Speaker 1: can always catch us worldwide on Bloomberg Radio