Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanobek. We're here every day bringing
Speaker 1: you the latest news from the world of business and finance,
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Speaker 1: YouTube search Bloomberg Clobal News. Well, Kitty Gradfeld and I
Speaker 1: have been talking about it throughout the first bit of
Speaker 1: our program this afternoon, and that's the rising COVID cases
Speaker 1: that we're seeing here in New York City and around
Speaker 1: the world and around the United States, just ahead of
Speaker 1: the holiday season. Here in New York, new daily cases
Speaker 1: are at levels not seen since last April, that was
Speaker 1: before the Delta variant ripped through the country. On a
Speaker 1: US basis, we're seeing new COVID cases at levels that
Speaker 1: we saw on the down trend of the Delta variant
Speaker 1: back in September, so definitely a concerning story playing out.
Speaker 1: Let's get some details from Dr Ian LUs Beder, clinical
Speaker 1: professor of Medicine at n y U Lang going to
Speaker 1: medical center. He joins us once again on the phone
Speaker 1: from New York City. How are you, Dr LUs Bader, Hey,
Speaker 1: Tim and Katie, Thanks Sheppy Friday. I'm doing well, but
Speaker 1: I'm definitely perceiving a lot of market volatility, a lot
Speaker 1: of emotional volatility, because patients are calling in droves with
Speaker 1: newly positive nasal SWR. Wow. Okay, So that's interesting to
Speaker 1: note that, because you know, it's quite a different tone
Speaker 1: than we had last week when we last spoke to you,
Speaker 1: and it certainly feels like things have shifted a lot
Speaker 1: where we are in a few days. I told Katie
Speaker 1: this earlier this week, but the lines outside of testing
Speaker 1: facilities in my neighborhood are stretching down the block, sometimes
Speaker 1: even to the next block. The number of people waiting
Speaker 1: for tests out. What's going on, Dr LUs Bader, is it?
Speaker 1: Is it a mix of people getting tested before traveling,
Speaker 1: or is indeed we're seeing a new surge here ahead
Speaker 1: of the holidays. I think we're definitely seeing a new surge.
Speaker 1: We're seeing a number of patients UM that have been
Speaker 1: double and triple E vaccinated. Colleagues that I work with
Speaker 1: in the hospital nurses, UM we've had three vaccines, have
Speaker 1: a running nosecloth cold, they get swabbed their PCR positive.
Speaker 1: I suspect most of these are O macron which are
Speaker 1: really breaking through the vaccines, and we are seeing a
Speaker 1: surge of increased, almost a doubling in the number of
Speaker 1: positive cases. So uh. The good news though, is that
Speaker 1: these really tend to be fairly mild. People have a headache,
Speaker 1: muscle aches, kind of like a mild flu, not nearly
Speaker 1: as bad as real influenza. And uh, unfortunately we don't
Speaker 1: have a lot of treatment now available for them, the
Speaker 1: monoclonal antibodies we are using, but now they're going to
Speaker 1: be rationed a little bit. Well definitely, I'm sorry, Dr Lost,
Speaker 1: I did just want to ask them given like you
Speaker 1: say that, you know, it seems to be more mild
Speaker 1: a macron very it is breaking through, but you're not
Speaker 1: going to get as sick as maybe previously. I'm curious
Speaker 1: how how much you think this current wave that we're
Speaker 1: starting to see build might delay the return to normal,
Speaker 1: whatever that looks like. I think it is going to
Speaker 1: somewhat delay the return to normal. I mean, we've sort
Speaker 1: of been predicting spring when this will all be over, right, Personally,
Speaker 1: I still think you know that will be the case.
Speaker 1: I do think oh Macron hopefully is the final variant
Speaker 1: and maybe somewhat endemic or even like a yearly flu.
Speaker 1: Possibly will get a yearly shot for it, although as
Speaker 1: we know, the flu shot is not really effective either. UM.
Speaker 1: My sense is that most people get over this quite well.
Speaker 1: We are reserving monoclonal antibodies, which we were giving out
Speaker 1: much more freely before, but now really can't do that
Speaker 1: for people over sixty five or people under fifty or
Speaker 1: people below sixty UM that have underlying diseases cardiovascular disease, diabetes,
Speaker 1: lung disease. So it is being somewhat rationed UM and
Speaker 1: I think that's appropriately so, because I think we were
Speaker 1: giving it too mild to moderate symptoms, you know, and
Speaker 1: people who would have gotten over this anyway within a
Speaker 1: few days. And in some ways I think we're trying
Speaker 1: to make the patients happy, but they probably didn't really
Speaker 1: need that treatment anyway. The pills that are coming out. Certainly,
Speaker 1: the Fiser pill is still going to be a little delayed.
Speaker 1: It's it's a combination with right ton of her, which
Speaker 1: is a protease inhibitor that you know has been used
Speaker 1: for years with HIV. Very safe UM, but again not
Speaker 1: not approved yet. So really we're treating people symptomatically and DR.
Speaker 1: I mean, like you said, you know plenty of people
Speaker 1: double triple vaccinated who have had breakthrough cases. I know
Speaker 1: plenty of such people in my own life, and I
Speaker 1: don't know. I'm curious if you have any concerns that
Speaker 1: that might dissuade people from getting the boost to this
Speaker 1: sort of feeling that it's inevitable that I'm going to
Speaker 1: get it anyway, Why why bother with another shot? I
Speaker 1: think you raise a good point, and I think for
Speaker 1: the people who are vaccine hesitant, over time, I think
Speaker 1: it just reinforces why bother doing this? I'm going to
Speaker 1: get it anyway, And to some degree I think that's true.
Speaker 1: I think everyone will be getting O Macron sooner or
Speaker 1: later unless you've really been able to isolate UM effectively.
Speaker 1: The bottom line is, really the vaccines do seem to
Speaker 1: help with with severity of illness, and I certainly feel
Speaker 1: better having gotten a third booster shot. It's very hard
Speaker 1: to measure specifically in any one individual if they're exposed,
Speaker 1: because it really depends on the viral load. If if
Speaker 1: someone is very sick with omicron and they cough in
Speaker 1: your face, you're going to have a high viral load.
Speaker 1: So it's very hard to measure. But I think the
Speaker 1: vaccines are helpful. Um. I think if you haven't been vaccinated,
Speaker 1: certainly be very careful going out in crowds because there's
Speaker 1: a long incubation period. People seem very minimally sick, and
Speaker 1: they can be very contagious. Dr lust Beder, we have
Speaker 1: thirty seconds left with you. Should people rethink gathering together
Speaker 1: for the holidays, Yes, to some degree, I think they
Speaker 1: should be careful. I'm not sure how I think everyone
Speaker 1: is going to wind up with omicron sooner or later.
Speaker 1: But I think if you are healthy and you've been
Speaker 1: a triple vaccinated, get together with family. I think if
Speaker 1: you haven't been vaccinated, or if you have underlying disease,
Speaker 1: I would be very careful at this point, and until
Speaker 1: we have a little more data on Dr Ian LUs Beder,
Speaker 1: we are really grateful you join us each and every week.
Speaker 1: He's clinical professor of medicine at n y U Lane
Speaker 1: Goes Medical Center. He joins us on the phone from
Speaker 1: New York City, said it several times, Katie, everyone is
Speaker 1: going to get it sooner or later. I mean, that's
Speaker 1: the moon music. It feels like everyone I talked to
Speaker 1: they're just you know, looking at their watch, wondering what
Speaker 1: their time is. Do alright, such such as where we
Speaker 1: are right now? Happy Friday, everyone is Bloomberg Business Week
Speaker 1: with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. Well. McDonald's was once celebrated in black entrepreneurial circles.
Speaker 1: Now though it's settling with black franchise the owners who
Speaker 1: say that they were blocked from the best and most
Speaker 1: profitable locations. In fact, in a little over a year,
Speaker 1: McDonald's has faced multiple lawsuits that McDonald's itself practices his
Speaker 1: own form of redlining. It's the subject of a detailed
Speaker 1: Its subject of a detailed story by Susan Burfield, senior
Speaker 1: investigative reporter for Bloomberg Business Week. She joins us on
Speaker 1: the phone from Brooklyn. Joel Webber joins us as well
Speaker 1: editor of Bloomberg business Week. He's on the access line
Speaker 1: from Brooklyn, Joel. To understand the story of of what's
Speaker 1: going on right now at McDonald's, you have to go
Speaker 1: back decades, all the way back to the nineteen seventies
Speaker 1: and the nineteen eighties. What did McDonald's do then in
Speaker 1: order to attract black franchise owners. Well, it was one
Speaker 1: of the first corporations that really UH did a job
Speaker 1: of being proactive about welcoming black franchisees. UM. And there's
Speaker 1: some nuance to that, but UH, for the large part,
Speaker 1: and this is what you said at the top, there
Speaker 1: there was an entrepreneurial spirit and welcoming of the black
Speaker 1: community to own McDonald's. UM. And Susan's reporting really UM,
Speaker 1: which is just incredible, but largely centers on on one
Speaker 1: character UH phone named Herb Washington, who who kind of
Speaker 1: speaks to that comes from that era. UM and started
Speaker 1: with one franchise and quickly amassed others UM. At one
Speaker 1: point he was had in the twenties, UM, but they
Speaker 1: were never turned out, never quite the best locations. UM.
Speaker 1: And that led to a lawsuit that just settled yesterday.
Speaker 1: But Susan Before we get into all that, who is
Speaker 1: Herb Washington and what was the opportunity that he saw
Speaker 1: in owning McDonald's. Yeah, so thanks UM. You know, I
Speaker 1: think for Washington and a lot of other black entrepreneurs,
Speaker 1: McDonald's offered them an opportunity to own a business um
Speaker 1: UM and to be part of a system UM at
Speaker 1: a time when those kinds of opportunities were often denied
Speaker 1: to them. And so you know, Herb had been UM
Speaker 1: a track star in college. He briefly played for the
Speaker 1: Oakland A's UM and then he decided he wanted to
Speaker 1: be a businessman. UM. He was given a first restaurant
Speaker 1: in Rochester, New York, in a neighborhood that was pretty
Speaker 1: impoverished and mostly black and Hispanic residents. And what he
Speaker 1: realized over the next couple of years is that there
Speaker 1: was a pattern at McDonald's, and that was that they
Speaker 1: initially believed that UM, it was best to put black
Speaker 1: owners UM into in black neighborhoods. You know, civil rights
Speaker 1: activists wanted it, UM it seemed good for the community
Speaker 1: these UM definitely was good for McDonald's. But over time,
Speaker 1: and what herbs experience showed is that that also served
Speaker 1: to constrain them to those neighborhoods and made it harder
Speaker 1: for them to own restaurants in communities um that were
Speaker 1: either more diverse or more white and well off, where
Speaker 1: the restaurants were usually easier to run and often more profitable.
Speaker 1: And Susan lock me through how this relationship works. Because
Speaker 1: McDonald's owns the actual restaurant building, right. And then you know,
Speaker 1: franchisees such as Washington have to pay them rents, right
Speaker 1: so we yeah, so I mean everyone calls them owners,
Speaker 1: but what they own really is the equipment inside the restaurants, um,
Speaker 1: the sign you know, outside the restaurant. M McDonald's own
Speaker 1: the building. The franchisees pay rent um, they pay a
Speaker 1: percent of their sales to McDonald's. UM, they pay all
Speaker 1: kinds of fees to McDonald's. Of course, they have to
Speaker 1: follow McDonald's rules, um, and so they are beholden um
Speaker 1: to the corporation. McDonald's of course wants them to succeed.
Speaker 1: But you know, if they don't, McDonald's is not really
Speaker 1: responsible for helping them. You know. So when the franchisees
Speaker 1: or if franchise's fall into financial trouble, sometimes they have
Speaker 1: to take on a lot of debt for these restaurants.
Speaker 1: For McDonald's asked them to renovate restaurants that can be
Speaker 1: quite costly. UM. You know, they bear um the burden
Speaker 1: of those costs. So bring us up to speed to
Speaker 1: where we are right now, Susan, and and where herb
Speaker 1: Washington is with his lawsuit? What is what was he
Speaker 1: looking for? And and what's the latest? Yeah, So, um,
Speaker 1: her Washington has filed his lawsuit alleging racial discrimination in
Speaker 1: the ways that you know we've just talked about in
Speaker 1: February of this year, and his is actually the fourth
Speaker 1: UM in about his year to make similar allegations. Uh.
Speaker 1: And last week McDonald's settled one of the other lawsuits
Speaker 1: brought by two other franchisees. And just yesterday, UM it's
Speaker 1: settled with her Washington. UM it bought him out entirely.
Speaker 1: So it purchased thirteen of his restaurants UM for his
Speaker 1: restaurants are total and paid him thirty three point five
Speaker 1: million dollars for them. So UM, as of yesterday, Her Washington,
Speaker 1: after forty years, is no longer part of McDonald's UM
Speaker 1: and his restaurants in the hands of other franchisees, which
Speaker 1: you know speaks to. There's there's two lawsuits that you
Speaker 1: mentioned there. One was a class action lawsuit that settled
Speaker 1: a week ago. There's two other ones that you mentioned
Speaker 1: the story that are also related. And just curious, like
Speaker 1: what does what does this mean altogether when you when
Speaker 1: you step back, can and think about you know, these
Speaker 1: culminating lawsuits and somebody like Washington like bringing all together?
Speaker 1: What does it all mean? Susan, Yeah, well, I think
Speaker 1: you know McDonald's is being held to account by UM,
Speaker 1: the very people who you know, it has depended on
Speaker 1: UM for many years to help it profit in the
Speaker 1: black community, and you know, many of whom have profited themselves,
Speaker 1: but you know they are they are UM, you know,
Speaker 1: asking McDonald's to consider how it's treated them over many decades. UM.
Speaker 1: You know McDonald's of course is not UM is settling.
Speaker 1: You know, it is not admitting any guilt. UM you
Speaker 1: know makes a point of saying that the court have
Speaker 1: not found that it's violated any laws. But nonetheless, you know,
Speaker 1: it wants UM these problems and these people to go away,
Speaker 1: And Susan quickly, I am curious, you know, are there
Speaker 1: any numbers we can attach to what this kind of
Speaker 1: version of redlining has meant for those franchisees who are
Speaker 1: in these areas. Yeah, so, in the lawsuits, some of
Speaker 1: the franchisees claim that their stores brought in about seven
Speaker 1: hundred thousand dollars less um than stores owned by other operators.
Speaker 1: And so you could figure an average um store these
Speaker 1: days makes about two point seven two point nine million dollars.
Speaker 1: So you know, it's not that they're not making anything,
Speaker 1: but seven hundred thousand dollar sales difference is pretty considerable. Well,
Speaker 1: it's just a great read. Susan, thank you so much
Speaker 1: for taking the time and for joining us on Bloomberg
Speaker 1: Business Week. Be sure to check out Susan's story on
Speaker 1: the Bloomberg terminal. You can also read it at Bloomberg
Speaker 1: dot com as well. McDonald's made enemies of black franchise ease.
Speaker 1: Now it's settling, is what Susan's story is called. That
Speaker 1: Susan Burfield, Senior investigations reporter at Bloomberg Business Weeks. She
Speaker 1: joins us on the phone from Brooklyn. Also joining us
Speaker 1: Joel Weber, editor at Bloomberg Business Week. He's on the
Speaker 1: access line from Brooklyn as Well, you're listening to Bloomberg
Speaker 1: Business Week with Carol Messer and Bloomberg Quick Takes Tim
Speaker 1: Stinovic on Bloomberg Radio. You're listening to Bloomberg Business Week
Speaker 1: with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. Tim, it feels like bitcoin cannot get off
Speaker 1: the ground. We are closing out the fifth straight week
Speaker 1: of losses. The price of bitcoin now below for thousand
Speaker 1: dollars per coin. We're going to talk to Mark Michael Sonenshein.
Speaker 1: He's the chief executive officer of Gray Skill. He joins
Speaker 1: us on the phone from New York City. Michael, There's
Speaker 1: so much I want to get into with you, but
Speaker 1: I feel like we have to start with the biggest
Speaker 1: cryptocurrency out there, Bitcoin. What is going on? It feels
Speaker 1: like all of the excitement has really exited the crypto markets. Well,
Speaker 1: first of all, great to be back talking to you guys,
Speaker 1: But I have to say that prices have never been
Speaker 1: and I don't think anytime soon will be the indicator
Speaker 1: of excitement or activity in and around bitcoin or a
Speaker 1: crypto asset class. I think from the lens that we
Speaker 1: look through it at great scale. There is no question
Speaker 1: that there is still as much as ever, it's not
Speaker 1: a growing excitement around the asset class, the use cases
Speaker 1: being developed, applications being developed. UM. While it grows user growth,
Speaker 1: UM price is not going to be the best sentiment
Speaker 1: indicator UM for activity on these networks. Okay, fair point,
Speaker 1: fair point, But I am curious to hear your explanation
Speaker 1: for why bitcoin is down over the past month. Well, listen,
Speaker 1: as we've seen time and again, bitcoin has a period
Speaker 1: of repeatable pattern rather of going through these you know,
Speaker 1: bubbles and bursts, and each time it does that, you
Speaker 1: see the price get a little bit overextended, course correct
Speaker 1: forms a new base UM and then usually continue to
Speaker 1: move out to new kind of all time highs. The
Speaker 1: bitcoin price has obviously had a meteoric rise throughout twenty
Speaker 1: one and I think what's so inspiring about being involved
Speaker 1: with the asset class that it means something different to everyone.
Speaker 1: So in some circles bitcoin may be seen as a
Speaker 1: risk asset, and so in a world in which investors
Speaker 1: may be taking money off the table and risk assets
Speaker 1: as we may be seeing. Yet you know, another flare
Speaker 1: off around the COVID nineteen pandemic um or investors may
Speaker 1: be thinking about it as a store of value a head.
Speaker 1: Everybody is using this as a slightly different tool um
Speaker 1: And so over time we found that investors will continue
Speaker 1: to allocate to the asset class. But after a year,
Speaker 1: when it's had the run that it's that it's had,
Speaker 1: you know, there's certainly could be some profit taking. Hey, Michael,
Speaker 1: we haven't had a chance to speak with you since
Speaker 1: the crypto executives faced questions from uh the House and
Speaker 1: the Senate this week, the House last week. I'm wondering
Speaker 1: your takeaways from those hearings. And and if you think
Speaker 1: that regulators and lawmakers get it, I mean and if
Speaker 1: you rewind the clock twenty four months ago, you couldn't
Speaker 1: even get crypto to be spoken about on the floor
Speaker 1: of the US Congress, right, And now we're having these
Speaker 1: very meaningful conversations that really underscore, you know, the democratic
Speaker 1: process that we have. The conversations that we've been seeing
Speaker 1: taking place are really informed, thoughtful questions being highlighted by Congress. Right.
Speaker 1: They're really listening and learning about the crypto industry, and
Speaker 1: instead of really taking the time to focus on the
Speaker 1: exaggerated risks or money laundering, or hats or ransomware. They're
Speaker 1: actually starting to really ask questions about the benefits of
Speaker 1: the asset class um using it to democratize finance, using
Speaker 1: these technologies to democratize the lady Internet is being used.
Speaker 1: And so we find this to be really really encouraging,
Speaker 1: and it's certainly been proponents of seeing increased regulation that
Speaker 1: will only lend itself to greater validity around the asset
Speaker 1: class And Michael, I mean I would agree with you,
Speaker 1: at least, especially in the house hearing. I was really
Speaker 1: impressed by the quality of the questions, but it feels
Speaker 1: like there's so many cooks in the kitchen when it
Speaker 1: comes to crypto regulation. I want to talk about the
Speaker 1: SEC because Gray Scale you've filed to convert your Gray
Speaker 1: Scale Bitcoin Trust. It's the largest crypto fund in the world.
Speaker 1: You filed to convert that into an e t F. Obviously,
Speaker 1: physically backed e t f s for bitcoin aren't allowed yet.
Speaker 1: But what caught my eye was in the past few weeks,
Speaker 1: both gray Skill has submitted a letter and then coin
Speaker 1: based this week on gray Skills Behalf submitted a letter
Speaker 1: to the SEC, just really urging them to allow that
Speaker 1: conversion to happen. And I guess i'd love to hear
Speaker 1: why first of all, and whether or not you've have
Speaker 1: a response yet from the SEC. Sure, So, the SEC
Speaker 1: um has been exceedingly recepted to the crypto asta class overall,
Speaker 1: and we've been engaging with them, you know, I would
Speaker 1: say at least in two thousand six UM on r
Speaker 1: EPs endeavors for the Great Scale Bitcoin Trust tick our
Speaker 1: g b TC. What's been a really encouraging and really
Speaker 1: meaningful milestone for the investment management industry is that this
Speaker 1: year we saw the approval of not one, but several
Speaker 1: bitcoin futures based ct s, and that signaled to us
Speaker 1: a change in the posture of the SEC around these
Speaker 1: types of products. But when we did see that, we
Speaker 1: were also very quick to say that, while that is
Speaker 1: a very meaningful step forward, well what about spot based
Speaker 1: or physically back to bitcoin products like GBTC. And what's
Speaker 1: interesting is that these two products are going to be
Speaker 1: tied to that same underlying bitcoin market, which is where
Speaker 1: the SEC has you know, really historically had their issues.
Speaker 1: They want to see surveillance of the bitcoin market and um,
Speaker 1: you know, the types of protections in place that they've
Speaker 1: seen in equities and and other asset classes. And there
Speaker 1: was a letter submitted on our behalf in filing first
Speaker 1: for the E T F right, but actually called out
Speaker 1: the fact that the SEC should really mean brain and
Speaker 1: even playing field. Michael, Yeah, we unfortunately have to leave
Speaker 1: it there because we are running up against the clock.
Speaker 1: We love having you on. You've got to come back soon, please,
Speaker 1: do we really appreciate it. Michael Sunshine is chief executive
Speaker 1: officer at Grace Scale joining us on the phone from
Speaker 1: New York City. You're listening to Bloomberg Radio and this
Speaker 1: is Bloomberg Business Week. Yeah, but you let me drive.
Speaker 1: Oh no, no, no, no, this is not a toy. Please,
Speaker 1: I'll do bridevel. I want to drive. It's good question,
Speaker 1: this is good Drive to the globe, mull drive up
Speaker 1: down on Bloomberg Radio. It's Bloomberg Business Week and it's
Speaker 1: time for it. Drive to the close. Katie and I
Speaker 1: just talking about the indicase that we're seeing move lower
Speaker 1: on the day today and look over the last five
Speaker 1: day days and for the week, we're going to see
Speaker 1: it down weeks, especially on the NASDAC, looking like it's
Speaker 1: going to close by about three percent. Let's get into
Speaker 1: it with Vince Nichols, global equity investment strategist at BNP
Speaker 1: Pariba Asset Management. Vince, how are you. I'm doing well.
Speaker 1: How are you all doing? I'm doing well. Thanks. Thanks
Speaker 1: for joining us on the phone from New York City.
Speaker 1: Then t help us make sense of this week. I mean,
Speaker 1: where do we even begin. Obviously, global central banks a
Speaker 1: huge part of it, inflation a huge part of it,
Speaker 1: but also the rise of the amicron variant, and the
Speaker 1: changing tone that we're seeing not just in New York
Speaker 1: City but around the country. Yeah, I think those are all, um,
Speaker 1: huge factors and all of this and and to the
Speaker 1: larger point, Um, you know, we're we're entering two in
Speaker 1: a very different place than we entered last year. We're
Speaker 1: coming out of the pandemic, or at least thinking we were. Um,
Speaker 1: you know, huge amounts of stimulus feeding the economy. NASS
Speaker 1: compares versus last year and in both growth and economic
Speaker 1: fundamentals or for corporates as well. Um, and this year
Speaker 1: it's it's obviously a lot different. Uh, stimulus is rolling off. Um,
Speaker 1: We're not going to see the same the same impact
Speaker 1: either from the fiscal side of things or um for
Speaker 1: monetary policy either and we saw that this week as
Speaker 1: you mentioned UM, but the FED now on a double
Speaker 1: of the pace that we originally expected for the tapering
Speaker 1: UM and who knows where it goes from there either.
Speaker 1: So I think there's a lot of uncertainty going into
Speaker 1: this next year. Doesn't necessarily mean I'm bearished or we
Speaker 1: as a firm our bearished, but I think one thing
Speaker 1: that that's probable for next year is is more of
Speaker 1: the same of this is a little bit more volatility.
Speaker 1: And Vince, how do you position a portfolio around that
Speaker 1: volatility and around some of those different factors that you
Speaker 1: walked through the fact that you know, it's clear we're
Speaker 1: not quite at the end of the tunnel when it
Speaker 1: comes to the pandemic, that much is clear. And like
Speaker 1: you said, the FED doubling the pace of the taper
Speaker 1: really taking a hawk is tone here. It's it's tough, um,
Speaker 1: but also it's great for active managers. Right, You're not
Speaker 1: going to just see multiple expansion and everything kind of
Speaker 1: rise in tandem. UM that there's going to be differentiation
Speaker 1: in investments that are working investments that don't work. I
Speaker 1: think it's important to focus on the bottom up UH
Speaker 1: companies with cash flow, companies that have the ability to
Speaker 1: pass on inflationary pressures to consumers UH. And those are
Speaker 1: the companies with you know, enduring competitive advantages UM, whereas
Speaker 1: others may face more margin pressure. Companies that are are
Speaker 1: pre earnings if you want to be nice to them
Speaker 1: or just uh nonprofitable to be a little bit more honest, UM,
Speaker 1: those companies might be more challenged going forward and may
Speaker 1: have less of a bid from optimistic UH market participants.
Speaker 1: And you may see a decline and market participation as
Speaker 1: well with less money in UM, you know, the retail
Speaker 1: trader's pockets. UM. So I think, as I said, you're
Speaker 1: gonna have more volatility, more dispersion, So I think important
Speaker 1: to focus on fundamentals. I think also when as we
Speaker 1: talked about inflation, it's UH. While our base case would
Speaker 1: be that you're going to get a moderation of inflation
Speaker 1: UH next year and pretty much throughout next year, so
Speaker 1: decelerating pretty soon but still above trend and also very
Speaker 1: high upside risks or a fat tail fattail risk to
Speaker 1: the upside UH. And in that case, I think you
Speaker 1: need to be prepared, um to have positions that will
Speaker 1: do well in such an environment. Even when do you
Speaker 1: think inflation will peak? That that's that's a great question. Um.
Speaker 1: A lot of people smarter than me would have said
Speaker 1: already that would have happened. Yeah, hence why we've retired
Speaker 1: the word transitory at least if you're talking to right,
Speaker 1: exactly exactly. Um So, not only the FED, but I
Speaker 1: think economic forecasters at at at many banks, um and
Speaker 1: people that are doing this professionally would have thought so
Speaker 1: in many cases. Uh. And here we are the last
Speaker 1: inflation report, um, the highest in decades. You know, that's
Speaker 1: more than three decades, to be exact. Uh. And that's
Speaker 1: that's that's an inflationary environment that many people in my
Speaker 1: industry have not seen in their working careers. Um. So
Speaker 1: it's going to be an interesting challenge. So to your question,
Speaker 1: when do we think it will peak? You know, I
Speaker 1: think base cases first half of the next year. At
Speaker 1: some point we are starting to see a lot of
Speaker 1: inflationary pressure's ease, and particularly the ones that we really
Speaker 1: deemed to be transitory. Um So those those are starting
Speaker 1: to roll over. But things like wage pressure things um.
Speaker 1: Uh So some of these aspects of inflation may be
Speaker 1: more sticky UM wages in particular, and I think that
Speaker 1: could um for some upside risk to that outlook. Then
Speaker 1: I'm hoping you can walk me through what this all
Speaker 1: means for the bond market, because if I look at
Speaker 1: the long end of the treasury curve, I see a
Speaker 1: ten year yield that just can't seem to say, above
Speaker 1: one point five per cent. And I mean we're talking
Speaker 1: about inflation, the fact that so many people have been
Speaker 1: wrong in trying to call the top. I mean, why
Speaker 1: can't we get long end yields sustainably higher? You know,
Speaker 1: that's a great question, and I'm a little bit out
Speaker 1: of my element here, But the one thing I will
Speaker 1: will say when I'm commenting on the bond market is, uh,
Speaker 1: it's really surprising to see bond prices where they are
Speaker 1: given the level inflation that we're seeing. Uh. You know,
Speaker 1: so such a large percentage of fixing COUM assets out
Speaker 1: there are having negative real returns UM and that's that's
Speaker 1: surprising to me that investors would be comfortable taking that
Speaker 1: on over a long period of time unless there's more
Speaker 1: tactical investing in that area. And I would imagine. So
Speaker 1: that's that's very surprising to me, even I know, at
Speaker 1: the risk of at the risk of being a little
Speaker 1: out of your element here, I'm just wondering, in your
Speaker 1: view as somebody who focuses more inequities, what is the
Speaker 1: signal that that's sending you, What is that telling you?
Speaker 1: Why is that surprising to you? It's it's telling you
Speaker 1: that had a lot of things have been bid up
Speaker 1: in the last uh well certainly the last eighteen months,
Speaker 1: but over the last decade as well. UM, simply global
Speaker 1: financial crisis. You've seen we're in a bull market for
Speaker 1: bonds for you know, I think approaching forty years now.
Speaker 1: Maybe in an excess of that, I don't know exactly. UM,
Speaker 1: that's that's very surprising to me. But it also shows
Speaker 1: you that you're seeing bids across all asset classes. You're
Speaker 1: seeing it, and even outside of equity and fixed income
Speaker 1: and real estate UM, prices for assets universally are much higher.
Speaker 1: And I think that that goes hand in hand with
Speaker 1: some of the the accommodative policies that we've seen. Evince,
Speaker 1: We're gonna have to leave it there, but thank you
Speaker 1: so much for joining us on this Friday afternoon for
Speaker 1: our Drive to the Close. That's Vince Nichols, global equity
Speaker 1: investment specialist at BNP Perry bat Asset Management. Thanks for
Speaker 1: listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,
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