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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jay Leye. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg

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Speaker 1: dot com, and of course, on the Bloomberg terminal. Michael

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Speaker 1: Purvis joins US founder and CEO of tal Back in

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Speaker 1: Capital Advisers. Uh. For all we know, he might not

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Speaker 1: be wearing pants, but I'm pretty sure he is. Uh. Michael,

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Speaker 1: how are you doing? Thanks so much for joining us.

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Speaker 1: Happy New Year's Eve Day to you. What do you

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Speaker 1: make of this? I mean, it's been an incredible year

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Speaker 1: for people. Long equities up like twenty eight percent, and

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Speaker 1: the third year in a row of big double digit gains?

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Speaker 1: Can this continue? I actually thinking, Ken, and I think

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Speaker 1: there's sort of an instinctive natural suspicion. But hey, he

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Speaker 1: can't get you know, four double digit years in the

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Speaker 1: SMP five hundred in a row. That's just not supposed

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Speaker 1: to happen. Um. And I think, while I appreciate that

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Speaker 1: sort of um instinctive concern, I actually, you know, my

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Speaker 1: price target for next year is hundred, which is up

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Speaker 1: another from where we are right now. Uh there, And

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Speaker 1: I think it's it's it's people have to you know, look, Matt,

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Speaker 1: this year, I was you know, I was among the

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Speaker 1: highest for the year and for this year at fifty

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Speaker 1: from twelve months ago when I upgraded that to forty

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Speaker 1: eight hundred in July, and I, you know, here we

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Speaker 1: are almost forty eight hundred. I think we take through

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Speaker 1: it yesterday. But look the the arithmetic of the probabilities

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Speaker 1: for me spell it a pretty obvious way, the ten

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Speaker 1: years kind of range bam. That reinforces a pretty healthy

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Speaker 1: equity risk premium. And you're looking at nominal GDP next

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Speaker 1: year in the United States of seven to eight percent.

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Speaker 1: That's just based on Bloomberg insensus forecasts there um and

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Speaker 1: and potentially some rest of work, you know, international GDP

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Speaker 1: that will uh actually recover if and when the virus

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Speaker 1: continues to fade um, that will reinforce the international dimension

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Speaker 1: of SMP earning. So you know, why would you why why?

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Speaker 1: I guess my my argument is why should twenty two

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Speaker 1: be any different from two thousand twenty one. Um, sure,

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Speaker 1: it's not going to be as exciting in terms of

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Speaker 1: the explosion of earnings growth with faith and base effects.

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Speaker 1: But the nominal GDP picture is very strong. You've got

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Speaker 1: big tech anchoring forty for some of the index with

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Speaker 1: uh you know, really still what is your what, by

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Speaker 1: the way, what is your earnings expectation? Michael? Next year?

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Speaker 1: Uh it's it's uh two hundred in sixty. I'm sorry

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Speaker 1: that that's twenty three two hunt for next year two

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Speaker 1: hundred and forty. Well, let's go from yeah, still strong. Well,

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Speaker 1: let's go from the earnings with fundamentals to the volatility picture.

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Speaker 1: Because we got as high as a thirty seven handle

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Speaker 1: on the VIX this year, we're now hovering about an

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Speaker 1: eighteen handle. January is a seasonally volatile session or seasonally

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Speaker 1: voltil month. I should say, what are you expecting on

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Speaker 1: that front? Well, uh, you know, look, the VIX this

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Speaker 1: entire year has been very robust. It's been um you know.

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Speaker 1: If you look at credit high yield credit spreads, for example,

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Speaker 1: they plummeted after the uh you know, the initial shock

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Speaker 1: of COVID in the spring of two thousand twenty, and

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Speaker 1: they kind of what I argued is that they've kind

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Speaker 1: of led the VIX down the vix. You know, you

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Speaker 1: can measure it on the spread of applied volatility to

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Speaker 1: realize volatility, or pitfall skew or tail skew and all

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Speaker 1: those different metrics within the SNP options universe, and they've

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Speaker 1: all been saying, uh, sort of reflecting tension and some anxiety,

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Speaker 1: right And and that's one of the reasons why the

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Speaker 1: dips throughout this year have been five to six percent

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Speaker 1: and not fift percent, right. It's the markets have been

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Speaker 1: pretty well ensured coming into this and that's a very

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Speaker 1: healthy factor and one of the reasons why I've been

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Speaker 1: very bullish this year and why I continue to be

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Speaker 1: bullish next year, because it seems like the bigs here,

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Speaker 1: you know, it's just going to be uh, it refuses

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Speaker 1: to like just drop down to that level. I don't

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Speaker 1: think we've had a close below fifteen this entire year,

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Speaker 1: despite a relentless march higher, right um there, So that

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Speaker 1: that is very healthy for the SMP five hundred. I've been,

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Speaker 1: you know, opportunistically putting on some short volatility trades, but

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Speaker 1: that's you know, um, you know, you have to sort

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Speaker 1: of pick your spots there. I think the like you

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Speaker 1: people shouldn't expect Yeah close, Yes, I did, I did. Um.

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Speaker 1: But you know that trade was you know, it made money,

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Speaker 1: but it wasn't a you know, like a fantastic like

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Speaker 1: you know, two thousand seventeen style short politility trade right.

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Speaker 1: Um there. But again, that's that's one of the reasons

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Speaker 1: why the tension within the Vicks world is one of

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Speaker 1: the reasons why the SMP keeps sort of relentlessly edging higher. Here.

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Speaker 1: Um all right, Michael, I gotta I gotta cut you off.

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Speaker 1: I can hear the Cantabrian water dog in the background barking.

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Speaker 1: I think your cows have gotten out. Michael Purvis coming

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Speaker 1: to us. They're from the Sturious Spain actually, one of

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Speaker 1: my favorite places in the entire world. Absolutely love um

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Speaker 1: the area there in Asturias, Spain. And uh, I hope

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Speaker 1: you have a great New Year's Eve and wish the

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Speaker 1: best for you and the whole family. Thanks so much

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Speaker 1: for joining us, Michael Purvis. There from tal Back in Capital,

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Speaker 1: Christina Hooper joins US global market strategists UM right now

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Speaker 1: at invest Go and Christina, you know, we have been

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Speaker 1: talking to so many investors who have told us they

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Speaker 1: see uh lesser returns in then we've become used to

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Speaker 1: over the past three years. Do you agree? I agree,

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Speaker 1: But let me give you this caveat. I think we're

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Speaker 1: going to see lesser returns when it comes to developed markets,

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Speaker 1: but I think could be a great year for emerging markets,

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Speaker 1: and that's a year for outperformance for em in particular China,

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Speaker 1: which has had a disappointing Alright, So China is one

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Speaker 1: area that we're watching incredibly closely, not just because of

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Speaker 1: the blew up in the property market, but also because

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Speaker 1: they seem set on increasing stimulus and making it really focused.

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Speaker 1: Do you expect that to bring decent games, both for

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Speaker 1: China and for the global economy. I do. I do.

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Speaker 1: I think it's going to be a combination of of

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Speaker 1: monetary and fiscal stimulus that helps the Chinese economy re

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Speaker 1: accelerate in two and I think we're likely to see

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Speaker 1: uh fewer regulations. Right, we saw a lot of regulatory

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Speaker 1: actions directed at reform in I think we're going to

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Speaker 1: see less of that in two and that should be

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Speaker 1: another positive catalyst for China equities um. But for developed markets,

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Speaker 1: I think what we're going to see is more of

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Speaker 1: a convergence of asset classes that typically is the case

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Speaker 1: when we enter a slow down phase of the economic cycle. Um,

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Speaker 1: it's nothing to be scared of. But I do think

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Speaker 1: we're going to see more muted stock market returns. Well.

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Speaker 1: In terms of China, we saw the Golden Dragon China Index,

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Speaker 1: which of course is the a d R is listed

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Speaker 1: in the US, return nine point four percent yesterday, their

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Speaker 1: biggest gain since two thousand eight. Of course, it's still

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Speaker 1: very far off the highs. It's China tech a place

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Speaker 1: that interests you. Oh absolutely, UM. Now, we certainly have

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Speaker 1: to recognize that China has some long term policy goals

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Speaker 1: that are part of its common Prosperity vision. UM. So

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Speaker 1: we have to recognize that there could still be more

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Speaker 1: regulation to come in. But I think it's pretty understandable

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Speaker 1: the areas they're focusing on, like, for example, data security. UM.

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Speaker 1: But having said all that, there is a lot of

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Speaker 1: opportunity for Chinese technology stocks. I do think we need

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Speaker 1: to be more patient with that. This may not be

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Speaker 1: a phenomenon, it may be something that as is a

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Speaker 1: good story for longer term China tech holders. Christina, let's

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Speaker 1: talk about a second for the omicon variant, because we

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Speaker 1: have to to hit about the impact. Now, the consensus

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Speaker 1: on Wall Street is that this isn't going to have

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Speaker 1: quite the same impact on, say, operations on consumer spending

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Speaker 1: that the original strain of the virus did back in

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Speaker 1: the spring of But I'm curious how much of gains

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Speaker 1: were based on the fact that we are going to

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Speaker 1: have this return to office, that we are going to

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Speaker 1: have this kind of much bigger progress in vaccines. What

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Speaker 1: is your take on that. How much of those gains

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Speaker 1: might we have to pair back in two as we

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Speaker 1: kind of face reality. Well, I don't think we're going

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Speaker 1: to see a big pairing bag of gains because the

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Speaker 1: omicron variant represents UH negative outcomes in the shorter run,

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Speaker 1: but could actually be a positive in the longer run UM.

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Speaker 1: And by that I mean that it is incredibly contagious

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Speaker 1: and the numbers we're seeing are are just like nothing

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Speaker 1: we've seen with any other variant. Having said that, the

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Speaker 1: silver lining is that it is UM. It does seem

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Speaker 1: to be far more mild, and it moves through populations

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Speaker 1: rather quickly, So we can take South Africa as an example.

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Speaker 1: UM cases peaked on December sixteen. UM now we're seeing

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Speaker 1: cases at less than half of what they were then,

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Speaker 1: So this is a really fast move through South Africa

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Speaker 1: already burning out. So if we can use that as

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Speaker 1: an example, and that really does happen with other countries

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Speaker 1: and it seems to be the case um from from

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Speaker 1: early indications in some other areas, UM, then that suggests

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Speaker 1: that it will move through the population rather quickly, create

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Speaker 1: some real issues in the shorter run, right in terms

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Speaker 1: of supply chain disruptions UM, exacerbating inflation, but then could

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Speaker 1: move through quickly and have that residual effect of having

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Speaker 1: immunized populations far more rapidly than say any vaccination program UM.

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Speaker 1: So it could be a positive again, UM if it

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Speaker 1: remains as mild as it seems to be. Are you

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Speaker 1: worried about the FED? In I know that the market

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Speaker 1: is expecting three rate hikes UM and March is reportedly

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Speaker 1: according to Governor Waller alive meeting. But if they don't

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Speaker 1: start until later, they're gonna squeeze them in pretty tight. Yeah,

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Speaker 1: So I'm not worried about the FED. And certainly we

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Speaker 1: always want to be following inflation and inflation expectations, and

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Speaker 1: that is a wild card because there is an element

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Speaker 1: of behavioral economics to all of this UM. But having

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Speaker 1: said that, I do believe that the fed UM will

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Speaker 1: have only three rate hikes in two or less UM,

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Speaker 1: and the market expects three rate hikes, so I think

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Speaker 1: that creates a relatively supportive environment for risk assets. Certainly,

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Speaker 1: we're going to see some volatility UM. There is going

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Speaker 1: to be some uncertainty along the way UM with regard

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Speaker 1: to monetary policy in the United States, but I think

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Speaker 1: ultimately we won't see the fed UM get get nervous

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Speaker 1: and overreact to any kind of high inflation print. All right, Christina,

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Speaker 1: thanks very much pleasure having on the program, and we

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Speaker 1: wish you and your family a happy and healthy New

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Speaker 1: Year's Eve. Christina Hooper there of Investo giving us her

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Speaker 1: outlook for let's talk about geopolitics right now. Daniel tennebound

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Speaker 1: partner and America's anti financial crime leader at Oliver Wyman,

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Speaker 1: joins us to discuss the not just the phone call

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Speaker 1: that President Biden had with President Putin yesterday, but also

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Speaker 1: the relationship and the issues that Russia has right now

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Speaker 1: with the West as it amasses troops on the border

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Speaker 1: of Ukraine. Reportedly, Dan, thanks so much for joining us.

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Speaker 1: How do you think the call went to kick it off.

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Speaker 1: I mean on New Year's I'm feeling a bit light.

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Speaker 1: I mean it was a perfect call for both sides. UM. Realistically,

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Speaker 1: I think both Putin and Biden got their messages in

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Speaker 1: where both sides can declare victory. It was largely reiterating

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Speaker 1: prior points that both sides made in terms of Russian

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Speaker 1: demands of what it was looking for from an assurance

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Speaker 1: standpoint for security, what Biden was looking to put out

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Speaker 1: there in the event that Russia escalated issues, which were

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Speaker 1: largely further sanctions in the event of a further escalation

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Speaker 1: into Crimea or into Ukraine. So I think realistically both

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Speaker 1: sides were able to walk away with a win, and

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Speaker 1: it really set the tone nicely for the talks that

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Speaker 1: will commence on January ten, with kind of the working

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Speaker 1: level within both governments to try and see how they

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Speaker 1: can deescalate the situation. But I mean, as a reminder,

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Speaker 1: this is largely a crisis of Putin's creation. There was

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Speaker 1: no imminent security threat against Russia. UM. This was a

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Speaker 1: pre emptive move to move troops into the Dambas and

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Speaker 1: begin to threaten UM, begin to threaten the Ukrainian sovereignty, Daneen,

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Speaker 1: I could exchange a dollar and get thirty six rubles

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Speaker 1: in return. Now if I exchange a dollar, I get

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Speaker 1: get about seventy five rubles. Really, since that crimea annexation

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Speaker 1: in that really spurred a lot of those sanctions from

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Speaker 1: the United States. In addition to that big drop in

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Speaker 1: oil prices we saw then, the ruble has never recovered.

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Speaker 1: Oil prices did, but the Russian currency didn't, and a

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Speaker 1: lot of that is thanks to sanctions. Just how much

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Speaker 1: further an impact can sanctions have on Russia right now?

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Speaker 1: So the sanctions that were imposed in ten were very targeted.

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Speaker 1: They were focused on certain aspects of the financial services,

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Speaker 1: energy and defense sectors, but there is more that could

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Speaker 1: be done. The threats that have been levied were a

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Speaker 1: focus on potentially cutting Russian financial institutions off from global

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Speaker 1: payment systems access, further sanctions to more significant oligarchs, and

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Speaker 1: escalation of what President Trump did in eighteen with a

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Speaker 1: number of significant oligarcs where their assets were frozen. Um

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Speaker 1: there are still more sanctions that could be imposed, even

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Speaker 1: on nord Stream too, in potentially cutting off the usage

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Speaker 1: in Europe of the nord Stream to pipeline, which would

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Speaker 1: have an adverse impact on the Russian economy. So there

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Speaker 1: is still more that can be done. The sanctions were

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Speaker 1: very surgical in nature. What's being threatened now is much

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Speaker 1: more of a broadsword approach. What wouldn't wouldn't cutting off

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Speaker 1: nord Stream to be a problem for Germany as well?

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Speaker 1: I mean don't I mean clearly they rely on Russian

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Speaker 1: energy supplies and isn't that a faster, cheaper way for

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Speaker 1: them to get in? It is, and especially coming into

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Speaker 1: the colder winter months, that's not really the best time

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Speaker 1: of year to start talking about cutting off any sort

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Speaker 1: of access the cheaper fuel. It is still something that

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Speaker 1: the US has been pressuring its German and other European allies.

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Speaker 1: Hard is one of several options and potential sanctions that

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Speaker 1: could be imposed, but it is probably one that it's

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Speaker 1: been less interesting to the Biden administration to push forward,

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Speaker 1: and something we've seen from Congress in the US where

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Speaker 1: both the Republicans and Democrats have been pushing for more

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Speaker 1: action on nord Stream too, even though it's completed um

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Speaker 1: and this is picking up off of an issue that

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Speaker 1: wasn't dealt with properly on the Trump administration side. Dan.

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Speaker 1: Beyond sanctions, another stick that US officials have waived or

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Speaker 1: is the possibility of the augmentation of NATO forces should

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Speaker 1: diplomacy not work. What effect would that have? Considering uh

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Speaker 1: Putin's narrative has been that NATO continues to move east.

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Speaker 1: I think there's no imminent threat as we understand it,

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Speaker 1: of further deployment of NATO forces into Ukraine unless there

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Speaker 1: is certain actions on the part of the Russians to escalate.

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Speaker 1: I think there's certainly talk of using troops to bed

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Speaker 1: down any sort of Russian escalation, any sort of Russian

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Speaker 1: incursion into Ukraine, but that certainly seems to be a

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Speaker 1: last measure. That being said, you know, we have certainly

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Speaker 1: seen sanctions have impact of the Russian economy, but they

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Speaker 1: certainly not necessarily scared off President Putin. President Putin seems

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Speaker 1: to understand force above all else. Dan, great to get

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Speaker 1: some time with you. Thanks so much for joining us um.

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Speaker 1: I think we really gain a lot from your inside

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Speaker 1: Daniel tennebown there of Oliver Wyman talking to us about

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Speaker 1: US Russian relations, and we wish you a happy and

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Speaker 1: healthy new year as well. Let's get back to the virus,

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Speaker 1: because the numbers that we have seen are just eye popping.

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Speaker 1: As I said, more than two million confirmed new cases

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Speaker 1: in one day globally yesterday it's the fourth day in

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Speaker 1: a row of more than a million. Mercedes Carnathon joins,

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Speaker 1: US Vice chair at the Northwestern University Feinberg School of Medicine,

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Speaker 1: Department of Preventative Medicine. And to some extent, this is

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Speaker 1: prevented prevent to bowl, uh, Mercedes, Um, But we see

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Speaker 1: the numbers just popping up. Is there any way to

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Speaker 1: turn this around now? Or does everybody eventually get the

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Speaker 1: omicron variant? You know, it's a really scary situation, and

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Speaker 1: thank you for having me to talk about it. All

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Speaker 1: along be known that this particular variant was highly contagious

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Speaker 1: and was infecting people even before they knew they had

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Speaker 1: significant symptoms. And then with it being slightly less virulent

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Speaker 1: and a large proportion of our population being vaccinated, the

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Speaker 1: symptoms can be so subtle that it's really spreading. I mean,

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Speaker 1: I hate to I hate to say we throw in

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Speaker 1: the towel and accept that everyone gets it. That's not

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Speaker 1: what we want to do because we still don't know

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Speaker 1: what the long term impacts will be I think we've

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Speaker 1: got to double down on the masking. We've got to

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Speaker 1: really emphasize and encourage vaccinations. Mercedes, when schools return next week,

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Speaker 1: what should they be doing, What measures should they be

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Speaker 1: taking if they are in person to prevent a spread

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Speaker 1: of a variant which has been spreading exponentially. You know,

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Speaker 1: that's a real concern. I've got young children who are

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Speaker 1: heading back to school. I feel very strongly that they

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Speaker 1: are safer in school than they are on play dates

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Speaker 1: that are happening in a much more casual setting and

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Speaker 1: even some general public places that you might take them

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Speaker 1: to have some fun. So I think returning to school

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Speaker 1: must be a priority. I think that a central strategy

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Speaker 1: to keeping children safe in school is going to be testing.

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Speaker 1: It's going to be surveillance testing so that you can

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Speaker 1: get a picture of the background rates of the virus

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Speaker 1: within the community and population of the school. And it's

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Speaker 1: going to be testing symptomatic and asymptomatic people so that

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Speaker 1: we can isolate them quickly. Let's talk about the isolation

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Speaker 1: period for a second. We just heard from the CDC

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Speaker 1: very recently that now if you are asymptomatic, you only

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Speaker 1: have to quarantine for five days. It's a ruling that

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Speaker 1: has had some industries, the airline industries. What I'm thinking of,

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Speaker 1: really up in arms about it. What are your thoughts

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Speaker 1: about simply the safety and the effectiveness of that strategy.

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Speaker 1: You know, I think that when when the CDC and

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Speaker 1: other organizations have to select a strategy that involves individual behavior,

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Speaker 1: there are always trade offs, and it can always feel

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Speaker 1: as though it's a choice between two least bad options.

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Speaker 1: The reality is that the recommendation is science driven. We

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Speaker 1: have seen throughout that the infectious period can be relatively short,

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Speaker 1: particular a early in individuals who are vaccinated. What becomes

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Speaker 1: more challenging is the unvaccinated and really needing to have

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Speaker 1: separate recommendations, and the CDC chose not to do that

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Speaker 1: and to make the single recommendation. Certainly upon release from isolation,

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Speaker 1: masking should still be used in order to protect other individuals.

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Speaker 1: All right, Mercedes, thanks so much for joining us. Really

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Speaker 1: appreciate your time on this would be should be holiday

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Speaker 1: on this New Year's Eve Day. Mercedes Carnathon there of

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Speaker 1: Northwestern University joining us to talk about the seriousness of

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Speaker 1: UH the COVID challenge that we still faced. This is

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Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live

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Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio

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Speaker 1: and on Bloomberg Television each day from six to nine

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Speaker 1: am for insight from the best in economics, finance, investment,

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Speaker 1: and international relations. And subscribe to the Surveillance podcast on

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Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on

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Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg