WEBVTT - Surveillance: Wealth Tax 'Baloney' With Cooperman 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 Jaily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.400 and of course on the Bloomberg terminal. I sent a 0:00:29.480 --> 0:00:32.120 note to h Lee Brody, who does all of our booking. 0:00:32.400 --> 0:00:35.440 Uh with the types of Leon Cooperman, and I said, Uh, 0:00:35.800 --> 0:00:39.159 Lee Brody, get Leon Cooperman on. There's any number of 0:00:39.200 --> 0:00:41.760 reasons we can always speak with a gentleman from Goldman 0:00:41.800 --> 0:00:45.080 Sachs and of course now chairman, chief executive officer at 0:00:45.080 --> 0:00:48.360 the aged seventy eight of Omega Family Office. But far 0:00:48.440 --> 0:00:51.880 more it's about the never ending debate of a wealth 0:00:51.960 --> 0:00:55.880 tax and of going after the billionaires. Mr Cooperman has 0:00:55.920 --> 0:00:58.720 been more than vocal marketing back to a letter of 0:00:58.760 --> 0:01:02.320 two three years ago to the Senator from Massachusetts. It 0:01:02.440 --> 0:01:06.200 is a five page, single line doozy where Leon Cooperman 0:01:06.319 --> 0:01:10.120 takes on the liberals, the Progressives, and Senator Warren. We 0:01:10.160 --> 0:01:12.560 are honored that Leon Cooperman could join us on Bloomberg 0:01:12.640 --> 0:01:15.960 surveillance this morning, Lee Cooperman, the debate is the same, 0:01:16.400 --> 0:01:19.800 and yet it's different. What's different now versus when you 0:01:19.840 --> 0:01:23.360 wrote that letter to three years ago. Well, I think 0:01:23.400 --> 0:01:26.320 it's becoming a little bit clearer that the general populace 0:01:27.200 --> 0:01:31.039 UH is not in alignment with the progressive You know, 0:01:31.120 --> 0:01:33.240 you saw that election in New Jersey, you saw the 0:01:33.240 --> 0:01:39.440 election in Virginia, UM and they dropped the proposal to 0:01:39.680 --> 0:01:44.000 have this tax on unrealized games. But I'd like to 0:01:44.040 --> 0:01:47.840 take a second, with your permission, I'm not involved in politics. 0:01:48.640 --> 0:01:50.920 About two years ago, I gave a speech at a 0:01:51.040 --> 0:01:54.480 Hedge Fund conference at a time when Elizabeth Warren was 0:01:54.560 --> 0:01:57.320 running strongly in the polls, and none of my speech 0:01:57.360 --> 0:02:00.000 was directed towards politics. At the end of my spee, 0:02:00.000 --> 0:02:02.240 each the moderator asked me, what do I think the 0:02:02.280 --> 0:02:07.120 market would do if for Ludith Warren presidency? And I said, 0:02:07.320 --> 0:02:09.520 you know, maybe I was optimistic. I said the mark 0:02:09.560 --> 0:02:12.799 would drop at least the very next day. Not knowing 0:02:12.840 --> 0:02:16.160 anything about me, she treats Leon, I'm only looking for 0:02:16.200 --> 0:02:19.480 two give others a chance of the American dream. And 0:02:19.520 --> 0:02:22.080 I made a decision to take the high road and 0:02:22.320 --> 0:02:26.560 basically uh. Michelle Obama once observed that when they go low, 0:02:26.600 --> 0:02:28.560 we go high. And I wrote her a very good 0:02:28.639 --> 0:02:31.840 letter and let her you decided a moment ago, and 0:02:31.960 --> 0:02:35.440 she showed to me that in the best sense, you know, 0:02:35.480 --> 0:02:38.480 if I wanted to be polite, I would say, uh, 0:02:38.600 --> 0:02:41.000 and respectful, I would say that she's a politician in 0:02:41.040 --> 0:02:43.360 the worst sense of the word. Uh. And if I 0:02:43.400 --> 0:02:45.720 wanted to be a bit more shop tongue, I would 0:02:45.720 --> 0:02:48.800 say that she's a nasty fool. But let me explain, 0:02:49.400 --> 0:02:52.919 you know, um, when I wrote the letter. Basically, her 0:02:52.960 --> 0:02:58.120 response was, you know, inside a trader and owned stock 0:02:58.160 --> 0:03:02.160 and navigant, totally unresp answer to the intellectual contract letter. 0:03:02.520 --> 0:03:04.000 You know, the fact that you live with me. I 0:03:04.040 --> 0:03:08.960 won the case with the sec Yeah, I'm sorry to leon. 0:03:09.320 --> 0:03:12.280 This is really important at a moment when what you 0:03:12.360 --> 0:03:14.960 call the vilification of the rich is gaining steam, that 0:03:15.000 --> 0:03:18.400 the idea that people feel like there is a fair 0:03:18.400 --> 0:03:21.560 share to be paid and that the wealthiest individuals are 0:03:21.600 --> 0:03:24.920 not paying it. What is the backdrop leading to the 0:03:25.000 --> 0:03:28.960 increasing calls for the fair share rather than trying to 0:03:29.000 --> 0:03:31.720 close loopholes and some of the other proposals that you've 0:03:31.720 --> 0:03:34.960 put out there. It's a good question. I think it's 0:03:35.040 --> 0:03:38.800 results of income disparity and the income disparity lodging results 0:03:38.840 --> 0:03:41.760 and government policies. You know, go back to two thousand eight. 0:03:42.440 --> 0:03:44.880 Mr Bernankee figured out the economy is going down the toilet. 0:03:45.160 --> 0:03:47.000 He had to rescue the economy. You think the best 0:03:47.000 --> 0:03:49.320 way to rescue the economy was to get wealth up. 0:03:49.360 --> 0:03:52.280 And his wealth leads to consumption. Uh. And the best 0:03:52.280 --> 0:03:53.960 way to get wealth up was to get the stock 0:03:54.000 --> 0:03:57.360 walking up. The trouble was the stocks very much one 0:03:57.560 --> 0:04:01.400 was sent to the people, and so income disparity group, right, 0:04:01.560 --> 0:04:03.760 And I'm gonna try to get that money back by 0:04:03.800 --> 0:04:06.040 creating an environment where there's been no return for maybe 0:04:06.160 --> 0:04:08.120 Leon I want to. I've got to get to the 0:04:08.160 --> 0:04:10.920 heart of the matter. In two thousand twenty one, and 0:04:11.000 --> 0:04:14.320 here's the bottom line. We've got a definition in this 0:04:14.480 --> 0:04:18.599 nation that four hundred thousand is filthy rich. It's St. 0:04:18.640 --> 0:04:22.680 Barnabus Hospital in New Jersey. If you've got a full 0:04:22.720 --> 0:04:27.000 line doctor, surgeon, whatever, and the spouse is working as well, 0:04:27.080 --> 0:04:29.960 or even if it's a single person, they're paying four 0:04:30.040 --> 0:04:34.240 hundred thousand, and they're deemed by liberals to be rich 0:04:34.920 --> 0:04:38.640 with all your experience growing up dirt poor is four 0:04:38.680 --> 0:04:43.839 hundred thousand and two thousand, twenty two rich. I don't 0:04:43.880 --> 0:04:46.719 think so. I don't think so. I think doctors have 0:04:46.760 --> 0:04:48.680 gotten totally screwed by the government when I look at 0:04:48.720 --> 0:04:50.760 what they have to go through to get their degree 0:04:50.760 --> 0:04:53.440 and be able to practice, and then with the controls 0:04:53.520 --> 0:04:57.200 over their income. Look, I believe in the progressive income 0:04:57.240 --> 0:04:59.600 tax structure. I believe rich people should pay more in 0:04:59.680 --> 0:05:03.280 tax is you know the question we have to deal 0:05:03.320 --> 0:05:05.760 with is a nation is coalesced around the question what 0:05:05.760 --> 0:05:08.479 should the maxim tax rate be unwealthy people, because that 0:05:08.520 --> 0:05:10.720 will be that will define the revenue to the government, 0:05:10.720 --> 0:05:14.080 that government exercize themselves that revenue. You okay, and all 0:05:14.080 --> 0:05:17.440 of this talk about wealth taxes, it's all bolay. They said, 0:05:17.480 --> 0:05:20.400 let them close the loopholes. You mentioned it a moment ago, Lisa, 0:05:20.440 --> 0:05:23.599 did you know ten thirty one billy a roll forward 0:05:23.600 --> 0:05:26.880 and definitely real estate gains, you know, get rid of that, 0:05:26.920 --> 0:05:30.480 get rid of carrot interest for head, raise a tax rate. 0:05:30.800 --> 0:05:33.600 We don't need new forms of taxation. Okay, we just 0:05:34.560 --> 0:05:37.240 deal with the loopholes. I do want to just go 0:05:37.360 --> 0:05:40.080 into something that you were talking about the idea of 0:05:40.120 --> 0:05:44.360 monetary policy pushing up equity pricing and that that does 0:05:44.400 --> 0:05:48.880 not reach everybody. Do you think that monetary policy where 0:05:48.880 --> 0:05:51.760 it has been has exacerbated the divide that has led 0:05:51.800 --> 0:05:55.200 to the discussion that you were talking about right now. Yeah, 0:05:55.240 --> 0:05:57.800 I would say, so, Look, you gotta go back. You know, 0:05:57.920 --> 0:06:01.480 Bill Clinton didn't vilify wealthy p people. Ronald Reagan didn't 0:06:01.560 --> 0:06:06.080 vilify wealthy people. George Bush didn't vilify wealthy people. I 0:06:06.120 --> 0:06:08.840 respect Obama as an individual, but he started the whole thing. 0:06:09.880 --> 0:06:11.560 I become a letter write I wrote him a letter 0:06:11.640 --> 0:06:14.080 nine years ago and I said, you know, you're basically 0:06:14.080 --> 0:06:17.320 telling you they being screwed by the one percent. Why 0:06:17.320 --> 0:06:19.400 do you tell the ent with a lot of hard 0:06:19.440 --> 0:06:22.159 work and luck, they could become part of the one 0:06:22.200 --> 0:06:27.360 percent instead of vilifying the wealthy. I think the world 0:06:27.360 --> 0:06:30.200 has been a place because of Bill Gates, Jeff Bezos, 0:06:30.200 --> 0:06:32.800 Bernie mark As, Kenn ln God and people like that. 0:06:33.120 --> 0:06:34.600 You know, I don't see a reason to veloped by 0:06:34.640 --> 0:06:37.039 them tax him. I have no problem with taxes. You know. 0:06:37.320 --> 0:06:39.480 I'm actually have taken the giving pledge to the Buffett 0:06:39.640 --> 0:06:42.320 and I've taken another giving pledge by friend Mike Leavin, 0:06:42.360 --> 0:06:44.599 the Jewish giving pledge. I'm giving away all my money, 0:06:45.000 --> 0:06:49.080 you know, so it's not a selfish motivation. Leon, we 0:06:49.120 --> 0:06:51.360 gotta leave it there. We are out of time. We'd 0:06:51.360 --> 0:06:53.960 like to continue this discussion as well. Leon, We've got 0:06:53.960 --> 0:06:56.479 to get you into our studios here in Manhattan when 0:06:56.480 --> 0:07:00.000 you decide to leave the acreage in New Jersey. Leon Cooper, 0:07:00.080 --> 0:07:10.080 Man with Omega Family Office. At the heritage of Credit 0:07:10.120 --> 0:07:13.840 Sweets and Derivatives is immense, It's dominant, constant and any 0:07:13.920 --> 0:07:16.320 number of other people, including I believe not seeing till 0:07:16.360 --> 0:07:19.680 ab ages, ago, derivatives and the mathness of it has 0:07:19.840 --> 0:07:23.440 always been front and center at Credit Suis Holding Court 0:07:23.600 --> 0:07:28.080 is their chief equity derivative strategist, the statistician and economist. Man. 0:07:28.080 --> 0:07:30.800 As you joins us this morning, many thrilled to have 0:07:30.960 --> 0:07:35.800 you with us. Can you explain the voll that you 0:07:35.960 --> 0:07:41.160 see in the cross moment Skew to mere mortals. Explain 0:07:41.280 --> 0:07:44.960 the oddities of the third cross moment Skew. We're not 0:07:45.000 --> 0:07:50.160 doing crotosis, we're cretosis ray today, but your world of skew. 0:07:50.920 --> 0:07:56.559 Explain how skewed Skew is to mere Mortals, so thanks 0:07:56.560 --> 0:07:58.960 for that introduction. Tom. You know, I can say definitely 0:07:58.960 --> 0:08:02.200 Skew is us Skew right now. Um. But you know, 0:08:02.720 --> 0:08:04.440 when you talk about all the macro risks and you 0:08:04.480 --> 0:08:07.840 guys let off with all the macro risk that's facing markets, inflation, 0:08:07.960 --> 0:08:09.920 the Fed, et cetera, I would say, you know, what 0:08:10.040 --> 0:08:13.880 was currently priced into the equity market is actually fairly bullish. Um. So, 0:08:13.960 --> 0:08:16.880 one of the more notable things that we've seen the 0:08:17.200 --> 0:08:20.800 equity market right now is that on market rallies, volatilities 0:08:20.840 --> 0:08:24.400 actually going up. Now that's very unusual because typically vaulting 0:08:24.560 --> 0:08:29.000 umply volatility decline on market rally and on the surface 0:08:29.000 --> 0:08:30.920 you might think that, you know, more of a cautious 0:08:30.960 --> 0:08:34.360 signal that people are you know, buying puts or you know, 0:08:35.040 --> 0:08:37.920 pricing in more downside risk. But actually, over the past 0:08:37.960 --> 0:08:40.920 week on the market rally, implying vaults are going higher 0:08:41.160 --> 0:08:44.480 on the back of demand for upside calls. And this 0:08:44.559 --> 0:08:48.200 is I would say particularly pronounced in small caps. So 0:08:48.240 --> 0:08:51.000 if you look at the Russell Index, for example, Russell 0:08:51.040 --> 0:08:54.679 had a very large breakout move last week up six percent. 0:08:55.440 --> 0:08:59.680 Russell Skew actually flattened to not just a one year low, 0:09:00.080 --> 0:09:02.640 but actually towards a ten year low. Right, this was 0:09:02.679 --> 0:09:06.360 primarily driven by demand for those upside calls um and 0:09:06.360 --> 0:09:09.040 call vollowing thing. They're very elevated and rustle as well. 0:09:09.240 --> 0:09:12.680 Many can you describe the character of that upside position 0:09:12.720 --> 0:09:15.079 where it's coming from. Is it primarily retail? Is it 0:09:15.160 --> 0:09:19.080 short dated coal options? What does it look like? Yeah? Sure, 0:09:19.559 --> 0:09:22.079 so at the index level, I don't think it's primarily retail. 0:09:22.120 --> 0:09:23.760 I mean at the single stock level. So you know, 0:09:23.760 --> 0:09:26.520 when we talk about skew flattening, this is a dynamic 0:09:26.520 --> 0:09:28.920 that we're seeing not just you know, for the Russell Index, 0:09:28.960 --> 0:09:31.920 but actually at the single stock level SMP, you know, 0:09:32.000 --> 0:09:35.920 top fifty, top one hundred stocks, we've also seen a 0:09:36.120 --> 0:09:39.840 very pronounced flattening in the skew and again primarily driven 0:09:39.840 --> 0:09:42.400 by the call side. And at the single stock level, 0:09:42.520 --> 0:09:45.559 we do think mostly this is coming from retail because 0:09:45.600 --> 0:09:48.440 in terms of the institutional flow that we see, it's 0:09:48.440 --> 0:09:53.239 actually the opposite. A lot of institutional investers, asset managers, pensions, 0:09:53.320 --> 0:09:56.920 hedge funds are actually coming into cell calls to overwrite 0:09:57.040 --> 0:09:59.320 their position. So taking advantage of that did to the 0:09:59.400 --> 0:10:02.480 upside that is I believe you know, primarily driven by 0:10:02.520 --> 0:10:04.880 retail man. You're taking a step back. Throughout the year, 0:10:04.920 --> 0:10:07.199 people have been talking about options being the tail that 0:10:07.240 --> 0:10:09.520 wags the dog, the idea that on a single stock name, 0:10:09.559 --> 0:10:14.040 You've seen the options market really overwhelmed the fundamentals and 0:10:14.080 --> 0:10:16.400 dictate some of the moves. Are we seeing that on 0:10:16.440 --> 0:10:19.800 a broader basis more than we have typically in the past. 0:10:21.559 --> 0:10:24.400 We have definitely seen more pronounced, you know, single stock moves. 0:10:24.400 --> 0:10:27.600 I don't necessarily attribute that to the option positioning, so 0:10:27.640 --> 0:10:30.520 I would say no, recently, it's really been driven by earning. 0:10:30.600 --> 0:10:33.199 So what we have seen over the past month is 0:10:33.200 --> 0:10:36.320 actually one of the biggest increase in single stock dispersion 0:10:36.679 --> 0:10:40.000 during earning season in five quarters. When I say seeing 0:10:40.040 --> 0:10:42.760 stock dispersion, I mean, you know, large single stock moves 0:10:43.000 --> 0:10:46.120 relative to the index UM and and this you know 0:10:46.160 --> 0:10:49.520 this quarter was not just the largest in five quarters, 0:10:49.559 --> 0:10:53.600 the third largest going back fifteen quarters UM And I'm 0:10:53.600 --> 0:10:56.040 going out thinking that thinking of that is that you know, 0:10:56.160 --> 0:10:59.959 a correlation, realized correlation in SMP, you know, has fallen 0:11:00.120 --> 0:11:04.120 significantly as we get these vidiosyncratic moves on earnings. So 0:11:04.240 --> 0:11:06.800 correlation SMP is currently at a one year low. On 0:11:06.920 --> 0:11:09.840 both an implied and realized basis, and again the moves 0:11:09.840 --> 0:11:11.680 are I say, pretty broad based. It is not really 0:11:11.720 --> 0:11:15.319 driven by one particular sector. The correlation is currently at 0:11:15.360 --> 0:11:18.199 a one year low for seven of the ten SMP 0:11:18.360 --> 0:11:22.480 sectors as well, Mandy, on a broad basis, looking at 0:11:22.600 --> 0:11:27.040 cash derivatives versus the huge nominal gross up of what 0:11:27.120 --> 0:11:30.240 all that papers really worth. Are we at a point 0:11:30.280 --> 0:11:34.760 of derivative speculation now? Or is it rather a contained 0:11:35.040 --> 0:11:40.680 normal market? You know, That's that's always kind of the 0:11:40.679 --> 0:11:44.240 the question, right, I think at certainly at the index level, UM, 0:11:44.280 --> 0:11:46.040 I do not think you know, we're in a situation 0:11:46.080 --> 0:11:49.480 where the derivatives market is overwhelming. UM, certainly, no, you're 0:11:49.480 --> 0:11:51.720 not not as a market like SMP as deep and 0:11:51.720 --> 0:11:55.040 liquid s the SMP certainly on single names, UM, particular 0:11:55.080 --> 0:11:57.480 single names you might, you know, make that case where 0:11:57.480 --> 0:12:00.439 your option activity has been very concentrated. But at the 0:12:00.480 --> 0:12:02.959 induct level, you know, we do not think so, Mandy. 0:12:03.120 --> 0:12:05.120 Always quite to hear from you have mischion. It's been 0:12:05.160 --> 0:12:07.000 too long, Mandy, see that I have quite swaste on 0:12:07.040 --> 0:12:15.520 the sanquity market. Thank you very much. Chrisma Rangi joining 0:12:15.559 --> 0:12:18.280 us now. Cacio of Gabelly Funds on the sanquity market. Chris, 0:12:18.320 --> 0:12:20.160 We've got to start there, haven't weight. How did you 0:12:20.200 --> 0:12:24.559 react when you saw that six handle on CPI in America? Well, 0:12:24.640 --> 0:12:27.400 unfortunately not with a lot of surprise. We're just getting 0:12:27.400 --> 0:12:30.760 through Q three earning season now, and unquestionably the theme 0:12:30.800 --> 0:12:33.679 of all these calls, whether it's autos or food or 0:12:33.720 --> 0:12:36.600 even the Walt Disney Company last night, is inflation and 0:12:36.640 --> 0:12:41.120 supply chain issues um, which inflation being one manifestation um 0:12:41.160 --> 0:12:47.319 so um. Everything is transitory along enough timeframe. This is 0:12:47.360 --> 0:12:50.080 changing anytime soon from what we're hearing from companies. Uh. 0:12:50.160 --> 0:12:53.400 Fred is probably gonna loose it up first. Uh but 0:12:54.440 --> 0:12:57.520 Semis we're gonna take a longer time. And labor we 0:12:57.559 --> 0:13:02.560 don't know. Chris Sperring, How do you inflation proof of portfolio? 0:13:02.640 --> 0:13:08.760 A measured value? Mario Gabelli's a certified starred portfolio. How 0:13:08.760 --> 0:13:12.680 do you inflation proof it? Well, the reality is that 0:13:12.720 --> 0:13:15.280 there's no way to inflation proof it um and not 0:13:15.440 --> 0:13:17.800 something that equity managers have had to think about for 0:13:17.960 --> 0:13:22.240 decades really. Notwithstanding that there are ways to to uh 0:13:22.400 --> 0:13:25.480 limit the impact of inflation. Looking for companies with pricing 0:13:25.520 --> 0:13:28.400 power in particular. Uh. And then the nirvana is really 0:13:28.440 --> 0:13:31.680 defined companies with both the pricing power and fixed fixed 0:13:31.679 --> 0:13:34.920 costs UM. You know, waste companies I've talked about before. 0:13:35.120 --> 0:13:37.200 It doesn't cost more to to get rid of garbage 0:13:37.240 --> 0:13:39.559 in a landfill that's already paid for UM. So we're 0:13:39.559 --> 0:13:41.480 looking for those, We're looking for stores of value, just 0:13:41.520 --> 0:13:44.160 like everybody else. I think the whole inflation the prospect 0:13:44.160 --> 0:13:46.480 of inflation is driven the crypto market. So if you 0:13:46.520 --> 0:13:48.880 look at gross margin, or you're bringing even down to 0:13:48.960 --> 0:13:52.280 a healthy but big percentage margin, that helps you with 0:13:52.360 --> 0:13:58.800 the inflation proofing. Does that steer you back to big tech? Well, 0:13:58.840 --> 0:14:01.040 there's no question that least some of the big tech 0:14:01.080 --> 0:14:05.320 companies Google comes to mind, have enormous pricing power. Uh. 0:14:05.320 --> 0:14:08.960 And and are many ways inflation conduits UM that we 0:14:08.960 --> 0:14:11.520 think about. Okay, well, what's the what's the impact of 0:14:11.559 --> 0:14:15.439 interest rates? And obviously the higher interest rates probably more 0:14:15.480 --> 0:14:17.839 impactful on those companies that have cash flow as well 0:14:17.840 --> 0:14:21.000 into the future. So we've got to balance those things. Chris. 0:14:21.160 --> 0:14:22.880 It was Warren Buffett who came out and said, only 0:14:22.880 --> 0:14:26.000 when the tide rolls out to discover who's been swimming naked. 0:14:26.400 --> 0:14:31.800 Is the tide starting to roll out right now? Uh? Well, 0:14:31.840 --> 0:14:35.000 we know, we know that the tides come in and out. 0:14:35.520 --> 0:14:38.080 We don't have a great schedule for that at at 0:14:38.200 --> 0:14:40.480 the present time. But yeah, I think we're probably closer 0:14:40.520 --> 0:14:43.760 to the tide going out. Um. I was saying that listen, 0:14:43.800 --> 0:14:47.680 Ribbean's got an eighty five billion dollar marketing gap. So, um, 0:14:47.720 --> 0:14:50.640 this isn't this isn't changing yet. At what point do 0:14:50.720 --> 0:14:53.480 we start to see some real disruptions however, where we 0:14:53.520 --> 0:14:58.680 see the most vulnerable players shaken out? Yeah, I think 0:14:58.920 --> 0:15:01.440 I think we're already ready to see that. Um. You 0:15:01.480 --> 0:15:05.800 know this will uh, an inability to pass along costs 0:15:06.280 --> 0:15:10.120 will cause financial pressure, will cause pressure on debt service 0:15:10.160 --> 0:15:12.040 for a lot of companies that that have leverage, and 0:15:12.480 --> 0:15:15.480 you know is the as the debt markets perhaps tightened up, Um, 0:15:15.560 --> 0:15:17.360 they might not be there for those companies. So this 0:15:17.400 --> 0:15:20.120 is a process that probably plays out over over time. 0:15:20.600 --> 0:15:23.000 Can you weigh in on that just briefly, Chris, that 0:15:23.120 --> 0:15:26.120 we've got an eighty six billion dollar market camp on 0:15:26.160 --> 0:15:28.960 an automaker that only just started delivering vehicles a couple 0:15:29.000 --> 0:15:31.200 of months ago. How do you respond to that, Chris? 0:15:31.200 --> 0:15:34.360 Someone like you Yeah, someone like me who you know 0:15:34.400 --> 0:15:37.520 owns GM with which is a very similar market cap 0:15:37.520 --> 0:15:40.520 and obviously a much larger market share. Um, it's puzzling 0:15:41.320 --> 0:15:43.720 with without Amazon, I don't think they have nearly the 0:15:43.760 --> 0:15:46.000 market cap that they do. But rib It appears to 0:15:46.000 --> 0:15:50.640 be a real company. But it's challenging to actually make stuff, 0:15:51.000 --> 0:15:53.280 make cars, get them delivered to customer, service them, and 0:15:53.320 --> 0:15:55.080 all those other things. So I think it's gonna be 0:15:55.080 --> 0:15:57.240 a bumpy road for that company. But um, you know, 0:15:57.560 --> 0:15:59.680 they're probably gonna be a good competitor. Have you built 0:15:59.680 --> 0:16:03.120 it us? Did you find a stock? Now? You know? 0:16:03.160 --> 0:16:05.720 We have Uh. We like to participate in some of 0:16:05.720 --> 0:16:08.360 these stories through suppliers. And one of the suppliers Tribbian 0:16:08.360 --> 0:16:11.000 as a company called Tenneco, a little teeny tiny auto 0:16:11.040 --> 0:16:12.880 supplier that makes a suspension for them. So that's a 0:16:12.880 --> 0:16:15.200 long way one way we play it. Let's see if 0:16:15.200 --> 0:16:17.160 they can run pump production in a big way, Chris 0:16:17.160 --> 0:16:19.680 cried to catch up. Remarkable moment for that industry. Chris 0:16:19.720 --> 0:16:30.240 Marangi Belly funds right now an important voice on your 0:16:30.320 --> 0:16:34.840 inflation Chairman Paul's inflation as well. Julia Cornado is president 0:16:34.880 --> 0:16:38.520 and founder of macro policy perspectives out of Texas, Austin, 0:16:38.600 --> 0:16:41.800 and of course always vetted for a position with the Fed, 0:16:41.840 --> 0:16:44.840 where she's worked for a good number of years. Of course, 0:16:45.080 --> 0:16:49.160 iconic at BMP Perry BA really talking a tepid GDP 0:16:49.840 --> 0:16:52.640 A crisis ago. Dr Coronado, thank you so much for 0:16:52.720 --> 0:16:57.240 joining us today. You are read worldwide for itty bitty 0:16:57.360 --> 0:17:02.800 charts on page seven where you go. Oh and your 0:17:02.880 --> 0:17:07.760 O chart this week is old and new guestimates of 0:17:07.880 --> 0:17:14.520 rent inflation. What is the dynamic of rent inflation in America? Well, 0:17:14.560 --> 0:17:16.800 it looks like we have a hot rent cycle on 0:17:16.800 --> 0:17:20.080 our hand as well. So we've had a couple two 0:17:20.119 --> 0:17:23.359 months of prints. We came basically a month earlier than 0:17:23.400 --> 0:17:25.760 we were expecting, but you know, a lot of the 0:17:25.800 --> 0:17:29.359 indicators have been pointing in this direction. This isn't a surprise, 0:17:29.480 --> 0:17:32.680 of course, Calibrating the magnitude is always the trick. So 0:17:33.160 --> 0:17:36.760 it came in a bit hotter uh in October. But 0:17:36.920 --> 0:17:39.240 it looks like we're going to have a surgeon rents 0:17:39.240 --> 0:17:41.920 in the first half of next year, starting now, going 0:17:41.920 --> 0:17:44.879 into the first half of next year. Um, you know, 0:17:44.960 --> 0:17:47.679 like many things this cycle, there was a surge of 0:17:47.720 --> 0:17:51.520 demand early in the cycle, we are seeing a building response, 0:17:51.600 --> 0:17:55.080 but of course the building response takes some time always, 0:17:55.200 --> 0:17:57.480 and it's going to take even more time given supply 0:17:57.600 --> 0:18:02.960 chain bottlenecks. So that's also going to probably be three 0:18:03.080 --> 0:18:06.560 issue before we see that moderate back down. So that's 0:18:06.680 --> 0:18:11.080 adding to the other pressures that were coming more related 0:18:11.160 --> 0:18:15.080 to COVID disruptions and civilizing issues that have renewed an 0:18:15.119 --> 0:18:18.560 intensity because of the delta variant. So it's sort of 0:18:18.600 --> 0:18:21.640 a combination of things that look more transitory and things 0:18:21.640 --> 0:18:24.919 that look more cyclical that are combining to produce some 0:18:25.040 --> 0:18:28.600 pretty Oh and the third factor, of course energy prices. 0:18:28.640 --> 0:18:31.920 And that really wasn't coming from the Google or from 0:18:31.960 --> 0:18:35.240 the U S situation. That's really you know, China European 0:18:35.359 --> 0:18:39.600 driven dynamic, but it sort of rolls into the US 0:18:39.720 --> 0:18:43.280 and UH and hits US consumers. Tell me about the 0:18:43.320 --> 0:18:48.000 timeline of FED and waiting for an inflation to turn 0:18:48.040 --> 0:18:52.760 around and become disinflation? Is it out to January of 0:18:52.880 --> 0:18:56.560 next year? The FED meeting of March sixteen or dare 0:18:56.600 --> 0:19:00.960 I say can they be data dependent to May fourth? Yeah? 0:19:01.040 --> 0:19:03.239 I think I think they can be data dependent. This 0:19:03.320 --> 0:19:07.000 is really an uncomfortable situation because again, the inflation is 0:19:07.000 --> 0:19:11.000 being frontloaded near term, anything they do today isn't going 0:19:11.040 --> 0:19:14.600 to have an effect for a year or more. And meanwhile, 0:19:14.720 --> 0:19:17.800 what we know is in train, we're still surfing this 0:19:18.040 --> 0:19:22.720 epic wave of fiscal support that will fade over two, 0:19:22.880 --> 0:19:27.320 that that money will be spent, that consumers will demand 0:19:27.359 --> 0:19:31.760 will cool off to some extent um. That's what everybody's forecasting, 0:19:32.359 --> 0:19:36.440 including the Fed. So uh, you know, as these forces 0:19:36.480 --> 0:19:39.200 come together, do you want to pile on to this 0:19:39.680 --> 0:19:43.040 front loaded tightening? Do you want to bide your time 0:19:43.080 --> 0:19:46.679 and wait for some of those forces to play out. Uh, 0:19:46.760 --> 0:19:49.320 It's going to be a tough road for the a 0:19:49.320 --> 0:19:52.080 tough balance for the Fed to strike. We we do 0:19:52.200 --> 0:19:54.840 think they will lift off in two, but we don't 0:19:54.880 --> 0:19:57.080 We don't think it will be towards till towards the end. 0:19:57.119 --> 0:20:00.399 We've got a taper. The we we are putting in 0:20:00.480 --> 0:20:04.280 a lot of global removal of accommodation and we haven't 0:20:04.359 --> 0:20:08.840 yet seen its impact on markets or the economy. Uh. 0:20:08.880 --> 0:20:12.199 And so you know, I think the FED proceeds. I 0:20:12.240 --> 0:20:15.240 think still the bar is pretty high to accelerating a 0:20:15.320 --> 0:20:18.960 tapering um. But you know, look, The good news is 0:20:19.000 --> 0:20:22.600 that some of this reflects a US recovery that's pretty 0:20:22.640 --> 0:20:27.040 darn resilient. As delta fades, we're seeing demand uh stay strong, 0:20:27.359 --> 0:20:30.679 and that bodes well for the staying power of the 0:20:30.760 --> 0:20:35.000 recovery through this verston inflation. In other words, you know, 0:20:35.119 --> 0:20:37.480 one thing you might worry about, and and some a 0:20:37.520 --> 0:20:40.600 few handful of analysts do, is that this could be 0:20:40.680 --> 0:20:43.879 demand destroying. This burst of global inflation tends to be 0:20:43.960 --> 0:20:47.080 sort of a harbinger of of recessions. We don't think 0:20:47.160 --> 0:20:50.280 that's the case because there's just such a good foundation 0:20:50.359 --> 0:20:52.760 for for the US recovery. Judy. And the next st 0:20:52.760 --> 0:20:55.280 off for this market, as you know, is the December meeting. 0:20:55.400 --> 0:20:57.520 At that meeting will get some forecasts. We get the 0:20:57.520 --> 0:20:59.639 summary of economic projections, and I'm just looking at the 0:20:59.640 --> 0:21:01.840 full for cole p c A at the FED for 0:21:01.920 --> 0:21:05.720 next year. It's two point. I just wanted from your perspective, Ju, 0:21:05.880 --> 0:21:08.200 how much does that need to change. I mean, that's 0:21:08.200 --> 0:21:12.399 actually our forecast, so it's um not that is a 0:21:12.440 --> 0:21:16.399 strong forecast. That's a forecast that includes a very strong 0:21:16.440 --> 0:21:20.200 rent cycle. But the key there is that goods inflation 0:21:20.320 --> 0:21:25.280 moderates as the year progresses, so that remember that's above 0:21:25.280 --> 0:21:29.720 target inflation, that that is strong inflation. All it builds 0:21:29.720 --> 0:21:34.159 into it is that the supply chain issues ease, that 0:21:34.320 --> 0:21:39.240 semiconductors become more available, that car prices flatten out, maybe 0:21:39.840 --> 0:21:42.520 cool off a little bit. But all you have to 0:21:42.560 --> 0:21:45.840 do is have goods prices stop going up at the 0:21:45.880 --> 0:21:49.440 pace they've been going up to get to that forecast. 0:21:49.480 --> 0:21:52.639 So it's not an unreasonable forecast that's set. I do 0:21:52.720 --> 0:21:55.760 think they raise the near term. Uh. The current year 0:21:55.800 --> 0:21:59.720 forecast looks too low. Uh. And I do think in 0:22:00.080 --> 0:22:02.240 the like half a hike, we do get a full 0:22:02.320 --> 0:22:04.879 hike in the baseline. It becomes the modal outcome for 0:22:04.880 --> 0:22:08.480 the committee. Uh. And and then you know, steady as 0:22:08.520 --> 0:22:11.480 she goes, it's gonna be. They're gonna feel the heat 0:22:11.600 --> 0:22:14.359 from all the questions. But I think the Fed's job 0:22:14.440 --> 0:22:16.520 here is to be the steady hand and keep their 0:22:16.560 --> 0:22:19.120 eye on that medium term. Julia, the idea of them 0:22:19.119 --> 0:22:22.040 being a steady hand when it's not as if they're 0:22:22.040 --> 0:22:25.080 not affecting some of these dynamics, I mean the idea 0:22:25.240 --> 0:22:27.959 of rent inflation we're talking about at a time when 0:22:28.000 --> 0:22:31.880 they're buying mortgage debt. They're buying bonds that actually reduces 0:22:31.960 --> 0:22:34.920 the yield on the margins of like the loans that 0:22:34.960 --> 0:22:38.840 people take out elevating prices. At what point will be 0:22:39.040 --> 0:22:42.399 staying the course, not be adding accommodation and will they 0:22:42.440 --> 0:22:44.600