WEBVTT - Surveillance: Fed Reaction With Posen 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 Ferrell 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 --> 0:00:30.760 and of course on the Bloomberg terminal. Right now, without question, 0:00:30.840 --> 0:00:34.279 our theoretical interview of the day, Adam posing with us 0:00:34.280 --> 0:00:38.720 with the Peterson Institute, just terrific analysis of the monetary 0:00:38.840 --> 0:00:42.639 theory behind all of these historic events. Adam, I want 0:00:42.640 --> 0:00:46.200 to take the alphabet soup of aggregate demand, aggregate supply, 0:00:46.800 --> 0:00:50.280 Hicksie and I s l M analysis and throw it 0:00:50.280 --> 0:00:54.200 out the window. What is the theoretical book of Chairman Powell? 0:00:55.120 --> 0:00:58.520 Theoretical book of Chairman palis actually been crety, honestly stated 0:00:58.560 --> 0:01:02.320 by him vice here Claire that nothers. First, you work 0:01:02.360 --> 0:01:05.200 on observables. You don't work on the stars like our 0:01:05.280 --> 0:01:08.679 star or priestar, wait till you see things. Second, that 0:01:08.720 --> 0:01:13.679 means that you do reactive rather than preemptive policy. Third, 0:01:14.000 --> 0:01:18.039 you focus on unemployment, but not unemployment as missioned by you. Three, 0:01:18.160 --> 0:01:21.800 or you sick by labor force participation by what really 0:01:21.880 --> 0:01:27.000 constitutial employment. And fourth that you're assuming that expectations are 0:01:27.080 --> 0:01:30.160 well anchored and not forward looking, you're not going to jump. 0:01:30.480 --> 0:01:33.840 You put those four things together, which he stated very clearly, 0:01:34.240 --> 0:01:37.080 and that gives you the strategy. And I'm posting what's 0:01:37.080 --> 0:01:40.440 so important here is the unknown and what the confidence 0:01:40.440 --> 0:01:43.279 of reading history is in particularly the forty seven boom 0:01:43.280 --> 0:01:46.440 out of World War Two, with all that inflation is 0:01:46.520 --> 0:01:53.480 supply comes on, we behave differently with excessive economic growth. 0:01:53.920 --> 0:01:58.240 What will be the nation's behavior given a seven percent 0:01:58.440 --> 0:02:02.160 g d P I think to seven percent GDP that's 0:02:02.240 --> 0:02:05.280 inherently going to be transitory, is not going to have 0:02:05.440 --> 0:02:07.800 that big an effect. Tom and I realized this is 0:02:07.880 --> 0:02:10.920 somewhat contrariant we are, and this is of course what 0:02:11.000 --> 0:02:13.360 the feed is betting on, which is that this is 0:02:13.440 --> 0:02:17.400 a one time surge. The overshoot does not persistent, and 0:02:17.520 --> 0:02:21.800 the longer term inflation expectations are not persistent. Now, my 0:02:21.880 --> 0:02:26.800 colleagues a Living Blanche Ard Larry Summers are emphasizing two things. 0:02:26.960 --> 0:02:30.040 First that the inflation is going to be pretty high 0:02:30.120 --> 0:02:33.280 as a result of this, and second that the FEDS 0:02:33.320 --> 0:02:37.200 ability to ride this out without raising rates, and to 0:02:37.360 --> 0:02:41.400 raise rates without breaking a lot of stuff is limited, 0:02:41.480 --> 0:02:43.480 and I think that's where the debate is, not how 0:02:43.560 --> 0:02:46.040 much inflation we're going to get. The final point I 0:02:46.040 --> 0:02:49.600 would making this is my own point, is that the 0:02:49.639 --> 0:02:52.840 savings rate I expect to stabilize at a much higher 0:02:52.919 --> 0:02:55.840 rate than it was before the pandemic, just as the 0:02:55.880 --> 0:02:59.080 household savings rate stabilized at a higher rate after the 0:02:59.080 --> 0:03:02.480 global financial crisis. So we're gonna see volatility over the 0:03:02.480 --> 0:03:04.840 next year, and all this talk about pent up savings, 0:03:05.160 --> 0:03:08.480 but it's not ultimately going to leave us spend spend 0:03:08.480 --> 0:03:11.120 spent atam. That final point is really important because I 0:03:11.120 --> 0:03:13.280 think that final point and your view on that variable, 0:03:13.600 --> 0:03:16.160 can be the difference between five six percent GDP growth 0:03:16.200 --> 0:03:17.600 and maybe seven and night, and it can be the 0:03:17.600 --> 0:03:21.080 difference between inflation ripping higher and inflation to your point 0:03:21.320 --> 0:03:23.600 just being a two percent story, Adam, how do you 0:03:23.639 --> 0:03:26.480 come to that conclusion about where the savings are, how 0:03:26.480 --> 0:03:29.200 they'll be spend, and how they'll be drawn down. Thank 0:03:29.240 --> 0:03:32.080 you for saying that, Johnson. And my view is there's 0:03:32.120 --> 0:03:34.040 two components to this. I mean, there's still gonna be 0:03:34.080 --> 0:03:36.840 a transitional dynamic and there is pent up demand in 0:03:36.920 --> 0:03:40.200 one key area of services, which is healthcare, and we're 0:03:40.200 --> 0:03:42.280 already starting to see that from the insurers. There is 0:03:42.320 --> 0:03:43.800 a lot of stuff that mey or may not have 0:03:43.840 --> 0:03:47.160 been elected, that was foregone during the worst of the pandemic. 0:03:47.400 --> 0:03:50.360 So I do expect a huge surge in healthcare spending, 0:03:50.680 --> 0:03:53.200 and that catch up is going to be inflation, because 0:03:53.200 --> 0:03:56.360 that's up the pent of the economy. But when we 0:03:56.400 --> 0:03:58.560 think about the savings rate, if you look at the 0:03:58.680 --> 0:04:01.360 history of major shots, you look at the history of 0:04:01.400 --> 0:04:03.360 the twenties and thirties, you look at the history for 0:04:03.440 --> 0:04:06.800 global financial crisis, what tends to happen in the US 0:04:06.920 --> 0:04:09.080 and a lot of other places. This is savings rate 0:04:09.160 --> 0:04:12.360 shoots up, comes back down. There's some messy dynamics, but 0:04:12.480 --> 0:04:14.960 you plet tell at a higher rate of savings. Think 0:04:15.000 --> 0:04:17.520 about young people we all know who twice in ten 0:04:17.600 --> 0:04:20.960 years either have seen their opportunities go away, or known 0:04:21.000 --> 0:04:23.760 people who have the bad luck to graduate high school 0:04:23.760 --> 0:04:26.640 with college in the wrong year. That kind of world, 0:04:26.839 --> 0:04:30.120 these scards you just as our grandparents became thrift blinded 0:04:30.160 --> 0:04:33.440 after the depression. So I expect the household savings rate 0:04:33.480 --> 0:04:35.560 to be up a percent and a half, like to 0:04:35.640 --> 0:04:39.719 six percent when it stabilizes after this crisis. Fascinating. At 0:04:39.760 --> 0:04:41.120 least you're not going to say this is probably one 0:04:41.160 --> 0:04:43.560 of the key variables right now for your round look, 0:04:43.640 --> 0:04:45.520 and I don't think it's been talked about enough. Yeah, 0:04:45.560 --> 0:04:47.480 the idea of spending and how much of this one 0:04:47.480 --> 0:04:51.240 point seven trillion dollars excess savings will be pumped into 0:04:51.240 --> 0:04:54.839 the economy. Adam, there's also a question of the frictions 0:04:54.880 --> 0:04:57.159 in getting people back into the labor market, and there 0:04:57.240 --> 0:05:00.360 was recently a Project Syndicate essay talking of at how 0:05:00.400 --> 0:05:03.200 a lot of jobs got eliminated much faster because of 0:05:03.240 --> 0:05:05.760 the pandemic. And these are the low cost to low 0:05:05.839 --> 0:05:09.159 skill jobs. What are you foreseeing. How much is the 0:05:09.160 --> 0:05:13.479 administration currently doing to ameliorate these frictions, to do training 0:05:13.520 --> 0:05:16.159 programs to help it so that people, particularly on the 0:05:16.200 --> 0:05:18.800 lower end of the income spectrum, can get back into 0:05:18.800 --> 0:05:22.400 the workforce pretty quickly. I think we've got to separate 0:05:22.400 --> 0:05:24.920 two things. You're absolutely right to focus on this issue 0:05:24.960 --> 0:05:28.040 because this is what economists referred to as scarring and 0:05:28.080 --> 0:05:30.800 this is the question both for inflation but also for 0:05:30.920 --> 0:05:33.920 human welfare. How much of the workforce can quickly come 0:05:33.960 --> 0:05:36.120 back to full employment if the FED lights it. M 0:05:36.839 --> 0:05:39.080 and I would say it's a mixed bag to be 0:05:39.120 --> 0:05:41.640 perfectly honest. On the one hand, what we're seeing is 0:05:41.760 --> 0:05:45.719 labor force scarring in the US actually isn't as bad 0:05:45.720 --> 0:05:49.080 as we think. Human scarring like the children missing school 0:05:49.480 --> 0:05:52.440 or people missing medical care is very real. But the 0:05:52.480 --> 0:05:55.200 ability of lower income people in the US when giving 0:05:55.240 --> 0:05:58.480 the opportunity to find work is actually quite high. New 0:05:58.520 --> 0:06:01.640 research computerson done by my colleagues that me and ghn 0:06:01.680 --> 0:06:04.600 clough and co authors avas Young have been looking at 0:06:04.720 --> 0:06:08.760 entrepreneurship and we've seen a surprising surgeon entrepreneurship in the 0:06:08.800 --> 0:06:12.440 small business sector. There's more resilience there. That doesn't mean 0:06:12.520 --> 0:06:15.440 people shouldn't look after them, but there is more resilience 0:06:15.480 --> 0:06:18.440 there and less scarring. That said, when you look at 0:06:18.480 --> 0:06:21.520 what's in the American Rescue Package or whatever it's called, 0:06:21.560 --> 0:06:24.440 the big package that just came from the Biden administration 0:06:24.480 --> 0:06:28.560 and Congress, most of it is short term and some 0:06:28.720 --> 0:06:31.400 of it is going to be about trying to extend 0:06:31.920 --> 0:06:35.600 the lifetime of jobs in restaurants, in hospitality and airlines 0:06:35.880 --> 0:06:38.280 that may not be there for the long term, and 0:06:38.360 --> 0:06:40.960 so it goes kind of the other way. We still 0:06:41.000 --> 0:06:44.680 need more investment a couple of percentage a year, frankly, 0:06:45.080 --> 0:06:49.159 in what the Europeans call active labor market policies, helping 0:06:49.160 --> 0:06:51.320 to match people and make them more mobile to get 0:06:51.360 --> 0:06:54.839 to new jobs. Okay, but this is a really important point, Adam, 0:06:54.839 --> 0:06:56.320 because it seems to be that you're saying this is 0:06:56.400 --> 0:07:00.880 irregardless of the pandemic, and this is regardless of the pandemic, 0:07:00.880 --> 0:07:03.400 irrespective of it. This is an important point. The idea 0:07:03.480 --> 0:07:07.520 here that the infrastructure plan cannot necessarily be billed as 0:07:07.560 --> 0:07:09.840 an extra stimulus to pull the economy out of the 0:07:09.880 --> 0:07:13.120 student out of the pandemic, but rather a shift in 0:07:13.360 --> 0:07:16.200 the economy and a way for the US to win 0:07:16.680 --> 0:07:19.720 in a world that's evolving towards five G and A 0:07:19.800 --> 0:07:22.920 and a different technology. Is that accurate in terms of 0:07:22.960 --> 0:07:25.880 what the US ought to be doing with infrastructure? He said, 0:07:25.920 --> 0:07:28.080 I think you're right that what we've got and what 0:07:28.200 --> 0:07:32.440 I'm trying to get across is the infrastructure broadly, and 0:07:32.480 --> 0:07:35.840 that means such things as as heavy duty just building bridges. 0:07:35.920 --> 0:07:39.240 That needs shifting the green composition and the carbon intensity 0:07:39.240 --> 0:07:42.080 of our economy, and that means the human infrastructure of 0:07:42.120 --> 0:07:44.960 making the best use of our people. That infrastructure is 0:07:45.000 --> 0:07:49.000 a long term issue, and that is something requires sustained spending, 0:07:49.320 --> 0:07:52.040 things that people can count on, things that businesses can 0:07:52.080 --> 0:07:56.280 plan for, and that requires financing that is not going 0:07:56.360 --> 0:07:58.400 to be paid for it how to debt on an 0:07:58.440 --> 0:08:02.440 ongoing basis, even if in general we would like to 0:08:02.520 --> 0:08:07.440 pay with debt for high return projects. Because of the 0:08:07.480 --> 0:08:11.160 amount we've had to spend for the for the stimula 0:08:11.280 --> 0:08:14.240 for the pandemic recovery, we've got to look at how 0:08:14.280 --> 0:08:17.040 to finance that over the long term. If we get 0:08:17.040 --> 0:08:19.520 back to a world where we're confident there's not going 0:08:19.560 --> 0:08:21.920 to be a recurrence in pandemics and we have a 0:08:22.000 --> 0:08:25.000 process in the Congress that actually works, then you can 0:08:25.040 --> 0:08:29.200 start talking about these are net positive investments and so 0:08:29.280 --> 0:08:32.719 we can finance them over time. Adam, that was a 0:08:32.760 --> 0:08:35.000 clinic and we always enjoy your time, so it's great 0:08:35.040 --> 0:08:37.480 to catch up and posting that the President of the 0:08:37.520 --> 0:08:46.240 Peterson Institute. What we are seeing now, folks, and this 0:08:46.320 --> 0:08:49.520 is so important, is our team at Bloomberg Surveillance trying 0:08:49.559 --> 0:08:53.040 to get us the best guests on the moment on inflation. 0:08:53.280 --> 0:08:56.640 It is David Rosenberg claimed at Maryland years ago for 0:08:56.720 --> 0:09:01.160 the partition of inflation the subsectors of inflation the dynamics, 0:09:01.400 --> 0:09:05.240 and David Rosenberg of Rosenberg Research has been heated in 0:09:05.280 --> 0:09:08.800 his disagreement on the certitude of a higher inflation. Mr 0:09:08.880 --> 0:09:12.520 Rosenberg joins us this morning. David, in our comments before 0:09:12.559 --> 0:09:15.520 this interview, you went right to the heart of the matter, 0:09:15.640 --> 0:09:19.200 which is it's assumed supply will come on in a 0:09:19.240 --> 0:09:25.439 boom economy. You disagree. Well, actually think that the supply 0:09:25.880 --> 0:09:30.400 with the lag is going to come back. Obviously demand Look, 0:09:30.400 --> 0:09:33.680 we had a demand implosion last year, a temporary bout 0:09:33.720 --> 0:09:38.120 of deflation as the demand created, you know, much faster 0:09:38.240 --> 0:09:40.520 than the supply did. Now this demand is going to 0:09:40.600 --> 0:09:43.760 come back at a faster rate than the supply side will. 0:09:44.640 --> 0:09:46.880 But look, it's all very temporary. I don't think that 0:09:47.040 --> 0:09:51.600 supply chains have been in disrepair for a permanent time 0:09:51.640 --> 0:09:54.240 period here. And of course we have the base effects 0:09:54.280 --> 0:09:56.559 that we're going to work off of in the next 0:09:56.600 --> 0:10:00.480 several months, and inflation will probably get the three and 0:10:00.520 --> 0:10:03.800 a half percent, maybe even a bit higher. Core will 0:10:03.800 --> 0:10:06.480 probably test two and a half percent. But again I 0:10:06.480 --> 0:10:10.480 think it's just it's very temporary. And I guess that 0:10:10.600 --> 0:10:13.280 my comment would be that, look, the we've seen this 0:10:13.440 --> 0:10:17.120 before from the treasury market, UH, that it often will 0:10:17.120 --> 0:10:20.480 shoot first and ask questions later. We had we had 0:10:20.520 --> 0:10:25.040 ten of these huge checkups in yields from oh nine 0:10:25.040 --> 0:10:29.080 to two thousand nineteen. We had several inflation scares, whether 0:10:29.080 --> 0:10:34.079 there were some commodities and oil and Barack Obama's infrastructure package, 0:10:34.760 --> 0:10:37.920 all the euphoria around the tax cuts, UH, and really 0:10:37.920 --> 0:10:40.120 the big story for the last cycle was that core 0:10:40.160 --> 0:10:43.880 inflation peaked at its lowest level in recorded history. So 0:10:43.920 --> 0:10:45.840 the question is, you know, are you going to focus 0:10:45.960 --> 0:10:48.840 on the trees? Are you going to focus on the 0:10:48.880 --> 0:10:51.760 forest past the trees? And right now the markets focused 0:10:51.800 --> 0:10:53.959 on the trees. But I think the surprise will be 0:10:54.000 --> 0:10:56.920 by the end of the year, um, how low inflation 0:10:56.960 --> 0:10:58.719 and cor inflation is going to be after we get 0:10:58.720 --> 0:11:01.920 through this temporary spout. Let's focus on the map as well, 0:11:02.080 --> 0:11:03.800 And I think you're the perfect guest to do this with, 0:11:03.960 --> 0:11:06.040 so we appreciate having you on the program this morning. 0:11:06.280 --> 0:11:09.840 Just the composition of the inflation basket and the dominant 0:11:09.840 --> 0:11:12.319 factors within that, and how you expect those forces to 0:11:12.400 --> 0:11:16.440 evolve in the coming year. Well, look, I think it's 0:11:16.480 --> 0:11:19.280 as that you had mentioned on the stilly set, we're 0:11:19.280 --> 0:11:22.320 going to be getting some goods inflation. We've already seen 0:11:22.360 --> 0:11:25.520 that already, the lagged impact of the prior weakness in 0:11:25.559 --> 0:11:28.840 the dollar, the run up in commodities, although they're not 0:11:29.160 --> 0:11:32.640 a very big share of the CPI or the core uh, 0:11:32.679 --> 0:11:36.360 they're still going to spill over. The service aside is 0:11:36.600 --> 0:11:39.559 going to be I think what's most important. And we've 0:11:39.559 --> 0:11:43.320 talked before about the dominance of shelter and the rental components, 0:11:43.360 --> 0:11:46.160 but that's really just looking at the being count on 0:11:46.200 --> 0:11:49.360 the bottom up basis. The reality is this, when you're 0:11:49.360 --> 0:11:52.960 looking at what ultimately drives inflation, commodities and even the 0:11:53.040 --> 0:11:55.360 things we're talking about today like the huge spike and 0:11:55.400 --> 0:11:59.480 the silly sed prices and decked again again, that's manufacturing. 0:12:00.240 --> 0:12:02.240 I think again that's going to be very temporary. That 0:12:02.280 --> 0:12:04.760 doesn't tell you were inflation is going to be in 0:12:04.800 --> 0:12:10.719 twelve months or in five years. Yeah. I was just 0:12:10.760 --> 0:12:12.959 gonna say, the key is the labor market, and people 0:12:12.960 --> 0:12:15.880 tend to forget there was everybody's focused on inflations. They 0:12:15.920 --> 0:12:18.680 don't realize I guess that the set has a dual mandate, 0:12:19.720 --> 0:12:22.400 and people look at this forecast of a three and 0:12:22.400 --> 0:12:25.160 a percent unemployment rate, you know, three years from now, 0:12:25.520 --> 0:12:28.560 and they think, oh, well, we're going back to full employment. Um, 0:12:28.559 --> 0:12:30.679 but that's not really what it's saying. I mean, you 0:12:30.679 --> 0:12:32.959 can look at a six point two percent unemployment rate 0:12:33.040 --> 0:12:35.080 right now and say, boy, that's not so bad. But 0:12:35.360 --> 0:12:38.120 you've got to remember over four million people of up 0:12:38.120 --> 0:12:40.960 the labor force in the past year, and we knew 0:12:41.200 --> 0:12:45.080 actually adjust for those people that left who could be 0:12:45.160 --> 0:12:47.600 unemployed if they came back into the labor market, if 0:12:47.640 --> 0:12:50.240 they don't find a job, the real unemployment rate is 0:12:50.280 --> 0:12:53.680 actually close to nine. So just show me a cycle 0:12:53.720 --> 0:12:56.199 and entire cycle, not two months, not three months, not 0:12:56.320 --> 0:12:58.880 for must show me a cycle of inflation that didn't 0:12:58.920 --> 0:13:03.320 involve we will wages accelerating beyond productivity growth. That's what 0:13:03.360 --> 0:13:05.920 I'm waiting for. When that happens, I'll change in my call. 0:13:06.240 --> 0:13:08.280 But I'm not changing my call because of Philly said 0:13:08.320 --> 0:13:11.120 prices or because of what the THERB index is doing. 0:13:11.200 --> 0:13:13.960 It's going to come from the labor markets. It's you're thinking, 0:13:14.040 --> 0:13:15.800 it's very much in live with the Federal Reserve. Then, 0:13:15.880 --> 0:13:17.760 so when it comes to the labor market, what are 0:13:17.760 --> 0:13:20.080 the data points do you think we should be focusing on, 0:13:20.200 --> 0:13:25.760 because the Federal Reserve ultimately is looking at the same place. Look, unfortunately, 0:13:25.920 --> 0:13:29.120 they only tell you, you know, the U three unemployment rate. 0:13:29.280 --> 0:13:31.480 Let's only tell you when people jump on the bandwagon. 0:13:31.520 --> 0:13:33.480 Oh well, look at this four and a half percent 0:13:33.600 --> 0:13:37.040 year and three and a half percent by three. It's 0:13:37.080 --> 0:13:39.680 not that simple, uh, you know, So I would say 0:13:39.720 --> 0:13:42.160 that let's look at the U six. Let's look at 0:13:42.160 --> 0:13:45.800 the broadest measure of unemployment, and it's eleven point one percent. 0:13:46.000 --> 0:13:49.320 Right now, You're not gonna squeeze inflation on any durable 0:13:49.360 --> 0:13:53.319 basis within eleven p U six unemployment rate. And so 0:13:53.360 --> 0:13:55.360 I'll tell you if I see evidence that it's going 0:13:55.400 --> 0:13:58.640 to pull down towards or below eight percent, that would 0:13:58.679 --> 0:14:01.680 be a telltale sign that work the employeed economy. Uh, 0:14:01.720 --> 0:14:04.280 if I start noticing, okay, and again this is looking 0:14:04.320 --> 0:14:08.120 at inflation broadly speaking, top down that we have to 0:14:08.160 --> 0:14:11.959 see real wasge growth exceed productivity. That will put more 0:14:12.040 --> 0:14:17.640 gurmal upper pressure on inflation, not commodity. And so really 0:14:17.640 --> 0:14:20.480 those are the data points that I'm looking at right now, David, 0:14:20.520 --> 0:14:23.480 what's the concern among economists that they've failed to get 0:14:23.480 --> 0:14:26.320 the depth of the downturn in the wake of the pandemic, 0:14:26.400 --> 0:14:29.240 then the depth or the incredible surge that we got 0:14:29.240 --> 0:14:32.200 in in the recovery. The idea here that we could 0:14:32.200 --> 0:14:35.120 see employment pick up much more quickly than we have 0:14:35.280 --> 0:14:38.120 ever before. I mean, how much does that change your 0:14:38.160 --> 0:14:42.800 outlook based on inflation? Okay, Well, you know there's a 0:14:42.840 --> 0:14:45.240 lot of assumptions there that employment is going to come 0:14:45.240 --> 0:14:50.080 back a lot more uh than was you know, previously thought. 0:14:50.320 --> 0:14:55.440 And of course employment is going to come back. But 0:14:55.720 --> 0:14:58.720 you know, the one thing that went up significantly last 0:14:58.800 --> 0:15:02.760 year at a time when we got the worst GDP number, UH, 0:15:02.920 --> 0:15:07.960 This n is business spending on automation UH and on 0:15:08.080 --> 0:15:11.040 software UH and on AI. And I think that a 0:15:11.120 --> 0:15:14.840 lot of business that realized this productivity actually boomed last 0:15:14.920 --> 0:15:18.040 year in a horrible year for the economy. Question is, therefore, 0:15:18.360 --> 0:15:20.400 you know, how many of these jobs are going to 0:15:20.480 --> 0:15:23.360 come back? Does anybody really believe that everything is going 0:15:23.400 --> 0:15:25.440 to come back, you know, in one month or two 0:15:25.520 --> 0:15:28.000 months or three months. This pandemic is not over. The 0:15:28.080 --> 0:15:32.680 vaccination rollout is very encouraging. We're winning, We're really winning 0:15:32.840 --> 0:15:35.040 the battle. But you know, I think there's a lot 0:15:35.080 --> 0:15:37.680 of assumptions. Let's look what's happened in the Europe for example. 0:15:37.960 --> 0:15:40.840 UM So, I don't think that everything is going to 0:15:40.960 --> 0:15:43.080 come back. Things will come back, but in a staggered way. 0:15:43.080 --> 0:15:44.960 It's not going to be like a snap of a finger. Now, 0:15:45.040 --> 0:15:48.000 let's not make any mistake here. We have tremendous physical stimulus. 0:15:48.040 --> 0:15:50.840 If we didn't have that UM nine hundred billion dollar 0:15:50.920 --> 0:15:53.720 package that was signed on December twenty seven, I can 0:15:53.720 --> 0:15:55.760 tell you just looking at the pattern of retail sales, 0:15:55.800 --> 0:15:58.960 we were heading into a first quarter GDP contraction. So 0:15:59.120 --> 0:16:01.560 right now, what does the vitality in the economy When 0:16:01.560 --> 0:16:05.880 you think about it, it's really vaccine and fiscal stimulus basically. 0:16:05.960 --> 0:16:07.920 And the Fed's quite right on this that the fiscal 0:16:07.920 --> 0:16:10.400 stimulus is all very transitory, so it gives you this 0:16:10.440 --> 0:16:15.640 initial jump in the data, but there's no fiscal multiplier here. Uh. 0:16:15.640 --> 0:16:18.000 And what I found very interesting was that when you 0:16:18.080 --> 0:16:21.000 look beyond this year's big boom in the economy, what 0:16:21.040 --> 0:16:25.160 does the FED really do to three on its GDP growth? 0:16:26.520 --> 0:16:29.840 It barely. So the fatis they're telling you this, and 0:16:29.880 --> 0:16:32.360 he's right, this is all temporary. Now, keep in mind 0:16:32.400 --> 0:16:34.440 one thing. I know that the market right now is 0:16:34.480 --> 0:16:37.880 pushing the FED and testing the FED and assuming that 0:16:37.920 --> 0:16:39.600 the FED is going to be forced in the moving 0:16:39.880 --> 0:16:43.560 rate earlier full year earlier. But here's what I'll say, 0:16:43.600 --> 0:16:47.720 because pal spells that everything in their forecast is predicated 0:16:48.240 --> 0:16:52.360 on policy remaining where it is for the next several years. 0:16:52.360 --> 0:16:54.840 They basically told you this is our forecast based on 0:16:54.920 --> 0:16:58.880 us on policy today, but but on rags staying in policy, 0:16:58.920 --> 0:17:02.480 stating story com for an extended period. So they're basically 0:17:02.480 --> 0:17:05.360 telling you that, you know, post this year. And look, 0:17:05.400 --> 0:17:07.840 we we've had these economic booms before, go back to 0:17:07.880 --> 0:17:09.920 nineteen eighty four. We had the same growth rate in 0:17:10.000 --> 0:17:12.760 nineteen four, going back to nineteen I mean, it's a 0:17:12.880 --> 0:17:15.960 very rare event to get say six or seven growth, 0:17:16.440 --> 0:17:18.919 incredibly unique. We've got to leave it there. Unfortunately, it's 0:17:18.920 --> 0:17:20.640 always great to get you on the show. Come back soon, 0:17:20.720 --> 0:17:29.119 Sir David Rosenberg of Rosenberg researched, and I'm going to 0:17:29.240 --> 0:17:30.880 rip up the script here. I know Lisa and John 0:17:30.960 --> 0:17:33.520 want to get to China with Dan tann Obami is 0:17:33.600 --> 0:17:38.320 truly are expert on sanctions, Dan, we have putin Biden. 0:17:38.359 --> 0:17:42.199 They're eight hundred seventy miles between Crimea in Moscow. This 0:17:42.280 --> 0:17:45.720 is really getting serious. This language, the genetic and moral 0:17:45.920 --> 0:17:49.560 code of sanctions. What sanctions are we going to see 0:17:49.920 --> 0:17:54.359 from the White House? Thanks Tom, and we we've seen 0:17:54.520 --> 0:17:57.880 sanctions as of late related to the poisoning of navalny. 0:17:57.960 --> 0:18:00.800 There's additional restrictions that are about to come into effect 0:18:00.800 --> 0:18:03.920 to restrict exports of certain technology goods from the US 0:18:03.960 --> 0:18:08.360 to Russia, and an impending sanctions program next week related 0:18:08.359 --> 0:18:10.679 to election meddling. I think the question though, that the 0:18:10.720 --> 0:18:13.119 market needs to be caused as enough. You know, if 0:18:13.160 --> 0:18:16.040 sanctions are designed to force a change in behavior with Russia, 0:18:16.040 --> 0:18:18.760 they've been extremely ineffective if you think about where these 0:18:18.760 --> 0:18:23.440 programs began, trying to get Russia to return Crimea to Ukraine, 0:18:23.440 --> 0:18:25.240 which is pretty clear at this point is not going 0:18:25.280 --> 0:18:28.159 to happen. There's consistent theme here, though, Dan, whatever we 0:18:28.200 --> 0:18:29.560 talk about, and you're right to bring up in the 0:18:29.560 --> 0:18:31.680 middle of the last decade we all remember covering get 0:18:32.000 --> 0:18:35.200 so little has changed when it comes to Europe. Little 0:18:35.240 --> 0:18:38.919 has changed to the relationship the energy relationship specifically between 0:18:38.960 --> 0:18:42.359 Germany and Russia as well, and that's a consistent theme 0:18:42.400 --> 0:18:45.320 when it comes to Russia. When it comes to China, Dan, 0:18:45.400 --> 0:18:46.960 what can the US do about that and what do 0:18:46.960 --> 0:18:50.440 you anticipate that will try to do about that? So 0:18:50.640 --> 0:18:53.400 it's unclear. There were some moves made in the last 0:18:53.400 --> 0:18:56.399 administration to attempt to thwart nord Stream too, and a 0:18:56.400 --> 0:18:59.320 little bit left over in the Biden administration, although frankly 0:18:59.359 --> 0:19:02.240 nord Stream too was nearly completed, so sanctions at this 0:19:02.280 --> 0:19:05.320 point would have been somewhat moved. I think trying to 0:19:05.359 --> 0:19:08.520 get allies more on side for human rights issues and 0:19:08.600 --> 0:19:11.600 trying to tie that back to the broader geopolitical agenda 0:19:11.640 --> 0:19:15.200 will probably be more productive than attempting to go after 0:19:15.240 --> 0:19:19.720 the energy sector, especially with Europe so dependent on Russia. UM, 0:19:19.760 --> 0:19:22.240 but it's pretty clear there was a missed opportunity on 0:19:22.320 --> 0:19:24.800 nord Stream to where the US really could have gained 0:19:24.800 --> 0:19:27.680 allied support to try and stop the efforts to complete 0:19:27.680 --> 0:19:30.879 the construction. All right, so let's move away from Russia 0:19:30.920 --> 0:19:32.560 and go to China. Given the fact that we're getting 0:19:32.600 --> 0:19:35.720 that meeting, that two day meeting an anchorage, is there 0:19:35.760 --> 0:19:38.240 anything likely to come of this or is it just 0:19:38.280 --> 0:19:42.400 going to be rhetoric yet again, the wide administration reiterating 0:19:42.440 --> 0:19:45.159 a lot of what Trump frankly did and said in 0:19:45.200 --> 0:19:48.640 our approach to China. Yeah, I mean I have this 0:19:48.800 --> 0:19:52.159 vision of some opening that's like Frankistance's best of this, 0:19:52.280 --> 0:19:55.280 where everyone begins to air their grievances. I mean, certainly, 0:19:55.320 --> 0:19:57.840 this has been an interesting week. You've got sanctions that 0:19:57.880 --> 0:20:00.720 were just applied on additional Chinese law makers under the 0:20:00.760 --> 0:20:04.639 Hong Kong Autonomy Act for the further crackdown on the 0:20:04.680 --> 0:20:08.200 election process in Hong Kong. Although you did have last 0:20:08.200 --> 0:20:10.880 week a win, so to speak for a Chinese technology 0:20:10.880 --> 0:20:13.199 company where an injunction was filed in the U S 0:20:13.200 --> 0:20:17.359 Court that essentially reverse the restriction and investing on US 0:20:17.440 --> 0:20:20.679 markets in that security. But then you also have shinjanang 0:20:20.920 --> 0:20:22.840 Um and some of the human rights sanctions that are 0:20:22.880 --> 0:20:25.080 now being levied by the EU on top of what 0:20:25.119 --> 0:20:28.440 the US has done. I think the the issue here 0:20:28.520 --> 0:20:31.360 is largely how will China respond? And they've built out 0:20:31.400 --> 0:20:34.879 their own sanctions programs. They build out law that enables 0:20:35.280 --> 0:20:39.040 UH penalties related to compliance with foreign sanctions. Really U 0:20:39.160 --> 0:20:42.880 S sanctions domestically, but I think looking for some sort 0:20:42.920 --> 0:20:46.080 of common ground is probably the best path forward on 0:20:46.119 --> 0:20:48.040 some of these issues. But there's quite a bit of 0:20:48.080 --> 0:20:51.160 room between these parties down. These sanctions come out, these 0:20:51.200 --> 0:20:53.360 policies change, and you spend a lot of time with 0:20:53.480 --> 0:20:57.280 corporates multinationals trying to make sure they're in compliance with them. 0:20:57.400 --> 0:20:59.159 But as you said at the start of this conversation, 0:20:59.200 --> 0:21:02.240 the automate gulf of policy makers is to change behavior. 0:21:02.320 --> 0:21:03.800 And it comes back to a question. I know you've 0:21:03.840 --> 0:21:07.400 been asked many times, and I'm sure increasingly so more recently, 0:21:07.680 --> 0:21:13.200 do you think sanctions actually work? So I do think 0:21:13.280 --> 0:21:17.240 sanctions work, but I think multilateral sanctions work, especially when 0:21:17.240 --> 0:21:20.040 you're talking about issues um in the human rights space 0:21:20.080 --> 0:21:22.119 of China, and I do think this is where you 0:21:22.280 --> 0:21:26.399 could end up seeing a much stronger multilateral response to 0:21:26.480 --> 0:21:29.359 try and deal with some of the forced labor challenges 0:21:29.560 --> 0:21:32.960 in China. You just saw yesterday a few other technology 0:21:33.000 --> 0:21:36.720 companies have suspended the use of some production manufacturing companies 0:21:37.000 --> 0:21:39.399 due to the forced labor in shin Chang. You may 0:21:39.520 --> 0:21:43.720 end up seeing between multilateral response and actually corporate action 0:21:43.760 --> 0:21:47.440