Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course, on the Bloomberg terminal. Michael
Speaker 1: Purvis joins US founder and CEO of tal Back in
Speaker 1: Capital Advisers. Uh. For all we know, he might not
Speaker 1: be wearing pants, but I'm pretty sure he is. Uh. Michael,
Speaker 1: how are you doing? Thanks so much for joining us.
Speaker 1: Happy New Year's Eve Day to you. What do you
Speaker 1: make of this? I mean, it's been an incredible year
Speaker 1: for people. Long equities up like twenty eight percent, and
Speaker 1: the third year in a row of big double digit gains?
Speaker 1: Can this continue? I actually thinking, Ken, and I think
Speaker 1: there's sort of an instinctive natural suspicion. But hey, he
Speaker 1: can't get you know, four double digit years in the
Speaker 1: SMP five hundred in a row. That's just not supposed
Speaker 1: to happen. Um. And I think, while I appreciate that
Speaker 1: sort of um instinctive concern, I actually, you know, my
Speaker 1: price target for next year is hundred, which is up
Speaker 1: another from where we are right now. Uh there, And
Speaker 1: I think it's it's it's people have to you know, look, Matt,
Speaker 1: this year, I was you know, I was among the
Speaker 1: highest for the year and for this year at fifty
Speaker 1: from twelve months ago when I upgraded that to forty
Speaker 1: eight hundred in July, and I, you know, here we
Speaker 1: are almost forty eight hundred. I think we take through
Speaker 1: it yesterday. But look the the arithmetic of the probabilities
Speaker 1: for me spell it a pretty obvious way, the ten
Speaker 1: years kind of range bam. That reinforces a pretty healthy
Speaker 1: equity risk premium. And you're looking at nominal GDP next
Speaker 1: year in the United States of seven to eight percent.
Speaker 1: That's just based on Bloomberg insensus forecasts there um and
Speaker 1: and potentially some rest of work, you know, international GDP
Speaker 1: that will uh actually recover if and when the virus
Speaker 1: continues to fade um, that will reinforce the international dimension
Speaker 1: of SMP earning. So you know, why would you why why?
Speaker 1: I guess my my argument is why should twenty two
Speaker 1: be any different from two thousand twenty one. Um, sure,
Speaker 1: it's not going to be as exciting in terms of
Speaker 1: the explosion of earnings growth with faith and base effects.
Speaker 1: But the nominal GDP picture is very strong. You've got
Speaker 1: big tech anchoring forty for some of the index with
Speaker 1: uh you know, really still what is your what, by
Speaker 1: the way, what is your earnings expectation? Michael? Next year?
Speaker 1: Uh it's it's uh two hundred in sixty. I'm sorry
Speaker 1: that that's twenty three two hunt for next year two
Speaker 1: hundred and forty. Well, let's go from yeah, still strong. Well,
Speaker 1: let's go from the earnings with fundamentals to the volatility picture.
Speaker 1: Because we got as high as a thirty seven handle
Speaker 1: on the VIX this year, we're now hovering about an
Speaker 1: eighteen handle. January is a seasonally volatile session or seasonally
Speaker 1: voltil month. I should say, what are you expecting on
Speaker 1: that front? Well, uh, you know, look, the VIX this
Speaker 1: entire year has been very robust. It's been um you know.
Speaker 1: If you look at credit high yield credit spreads, for example,
Speaker 1: they plummeted after the uh you know, the initial shock
Speaker 1: of COVID in the spring of two thousand twenty, and
Speaker 1: they kind of what I argued is that they've kind
Speaker 1: of led the VIX down the vix. You know, you
Speaker 1: can measure it on the spread of applied volatility to
Speaker 1: realize volatility, or pitfall skew or tail skew and all
Speaker 1: those different metrics within the SNP options universe, and they've
Speaker 1: all been saying, uh, sort of reflecting tension and some anxiety,
Speaker 1: right And and that's one of the reasons why the
Speaker 1: dips throughout this year have been five to six percent
Speaker 1: and not fift percent, right. It's the markets have been
Speaker 1: pretty well ensured coming into this and that's a very
Speaker 1: healthy factor and one of the reasons why I've been
Speaker 1: very bullish this year and why I continue to be
Speaker 1: bullish next year, because it seems like the bigs here,
Speaker 1: you know, it's just going to be uh, it refuses
Speaker 1: to like just drop down to that level. I don't
Speaker 1: think we've had a close below fifteen this entire year,
Speaker 1: despite a relentless march higher, right um there, So that
Speaker 1: that is very healthy for the SMP five hundred. I've been,
Speaker 1: you know, opportunistically putting on some short volatility trades, but
Speaker 1: that's you know, um, you know, you have to sort
Speaker 1: of pick your spots there. I think the like you
Speaker 1: people shouldn't expect Yeah close, Yes, I did, I did. Um.
Speaker 1: But you know that trade was you know, it made money,
Speaker 1: but it wasn't a you know, like a fantastic like
Speaker 1: you know, two thousand seventeen style short politility trade right.
Speaker 1: Um there. But again, that's that's one of the reasons
Speaker 1: why the tension within the Vicks world is one of
Speaker 1: the reasons why the SMP keeps sort of relentlessly edging higher. Here.
Speaker 1: Um all right, Michael, I gotta I gotta cut you off.
Speaker 1: I can hear the Cantabrian water dog in the background barking.
Speaker 1: I think your cows have gotten out. Michael Purvis coming
Speaker 1: to us. They're from the Sturious Spain actually, one of
Speaker 1: my favorite places in the entire world. Absolutely love um
Speaker 1: the area there in Asturias, Spain. And uh, I hope
Speaker 1: you have a great New Year's Eve and wish the
Speaker 1: best for you and the whole family. Thanks so much
Speaker 1: for joining us, Michael Purvis. There from tal Back in Capital,
Speaker 1: Christina Hooper joins US global market strategists UM right now
Speaker 1: at invest Go and Christina, you know, we have been
Speaker 1: talking to so many investors who have told us they
Speaker 1: see uh lesser returns in then we've become used to
Speaker 1: over the past three years. Do you agree? I agree,
Speaker 1: But let me give you this caveat. I think we're
Speaker 1: going to see lesser returns when it comes to developed markets,
Speaker 1: but I think could be a great year for emerging markets,
Speaker 1: and that's a year for outperformance for em in particular China,
Speaker 1: which has had a disappointing Alright, So China is one
Speaker 1: area that we're watching incredibly closely, not just because of
Speaker 1: the blew up in the property market, but also because
Speaker 1: they seem set on increasing stimulus and making it really focused.
Speaker 1: Do you expect that to bring decent games, both for
Speaker 1: China and for the global economy. I do. I do.
Speaker 1: I think it's going to be a combination of of
Speaker 1: monetary and fiscal stimulus that helps the Chinese economy re
Speaker 1: accelerate in two and I think we're likely to see
Speaker 1: uh fewer regulations. Right, we saw a lot of regulatory
Speaker 1: actions directed at reform in I think we're going to
Speaker 1: see less of that in two and that should be
Speaker 1: another positive catalyst for China equities um. But for developed markets,
Speaker 1: I think what we're going to see is more of
Speaker 1: a convergence of asset classes that typically is the case
Speaker 1: when we enter a slow down phase of the economic cycle. Um,
Speaker 1: it's nothing to be scared of. But I do think
Speaker 1: we're going to see more muted stock market returns. Well.
Speaker 1: In terms of China, we saw the Golden Dragon China Index,
Speaker 1: which of course is the a d R is listed
Speaker 1: in the US, return nine point four percent yesterday, their
Speaker 1: biggest gain since two thousand eight. Of course, it's still
Speaker 1: very far off the highs. It's China tech a place
Speaker 1: that interests you. Oh absolutely, UM. Now, we certainly have
Speaker 1: to recognize that China has some long term policy goals
Speaker 1: that are part of its common Prosperity vision. UM. So
Speaker 1: we have to recognize that there could still be more
Speaker 1: regulation to come in. But I think it's pretty understandable
Speaker 1: the areas they're focusing on, like, for example, data security. UM.
Speaker 1: But having said all that, there is a lot of
Speaker 1: opportunity for Chinese technology stocks. I do think we need
Speaker 1: to be more patient with that. This may not be
Speaker 1: a phenomenon, it may be something that as is a
Speaker 1: good story for longer term China tech holders. Christina, let's
Speaker 1: talk about a second for the omicon variant, because we
Speaker 1: have to to hit about the impact. Now, the consensus
Speaker 1: on Wall Street is that this isn't going to have
Speaker 1: quite the same impact on, say, operations on consumer spending
Speaker 1: that the original strain of the virus did back in
Speaker 1: the spring of But I'm curious how much of gains
Speaker 1: were based on the fact that we are going to
Speaker 1: have this return to office, that we are going to
Speaker 1: have this kind of much bigger progress in vaccines. What
Speaker 1: is your take on that. How much of those gains
Speaker 1: might we have to pair back in two as we
Speaker 1: kind of face reality. Well, I don't think we're going
Speaker 1: to see a big pairing bag of gains because the
Speaker 1: omicron variant represents UH negative outcomes in the shorter run,
Speaker 1: but could actually be a positive in the longer run UM.
Speaker 1: And by that I mean that it is incredibly contagious
Speaker 1: and the numbers we're seeing are are just like nothing
Speaker 1: we've seen with any other variant. Having said that, the
Speaker 1: silver lining is that it is UM. It does seem
Speaker 1: to be far more mild, and it moves through populations
Speaker 1: rather quickly, So we can take South Africa as an example.
Speaker 1: UM cases peaked on December sixteen. UM now we're seeing
Speaker 1: cases at less than half of what they were then,
Speaker 1: So this is a really fast move through South Africa
Speaker 1: already burning out. So if we can use that as
Speaker 1: an example, and that really does happen with other countries
Speaker 1: and it seems to be the case um from from
Speaker 1: early indications in some other areas, UM, then that suggests
Speaker 1: that it will move through the population rather quickly, create
Speaker 1: some real issues in the shorter run, right in terms
Speaker 1: of supply chain disruptions UM, exacerbating inflation, but then could
Speaker 1: move through quickly and have that residual effect of having
Speaker 1: immunized populations far more rapidly than say any vaccination program UM.
Speaker 1: So it could be a positive again, UM if it
Speaker 1: remains as mild as it seems to be. Are you
Speaker 1: worried about the FED? In I know that the market
Speaker 1: is expecting three rate hikes UM and March is reportedly
Speaker 1: according to Governor Waller alive meeting. But if they don't
Speaker 1: start until later, they're gonna squeeze them in pretty tight. Yeah,
Speaker 1: So I'm not worried about the FED. And certainly we
Speaker 1: always want to be following inflation and inflation expectations, and
Speaker 1: that is a wild card because there is an element
Speaker 1: of behavioral economics to all of this UM. But having
Speaker 1: said that, I do believe that the fed UM will
Speaker 1: have only three rate hikes in two or less UM,
Speaker 1: and the market expects three rate hikes, so I think
Speaker 1: that creates a relatively supportive environment for risk assets. Certainly,
Speaker 1: we're going to see some volatility UM. There is going
Speaker 1: to be some uncertainty along the way UM with regard
Speaker 1: to monetary policy in the United States, but I think
Speaker 1: ultimately we won't see the fed UM get get nervous
Speaker 1: and overreact to any kind of high inflation print. All right, Christina,
Speaker 1: thanks very much pleasure having on the program, and we
Speaker 1: wish you and your family a happy and healthy New
Speaker 1: Year's Eve. Christina Hooper there of Investo giving us her
Speaker 1: outlook for let's talk about geopolitics right now. Daniel tennebound
Speaker 1: partner and America's anti financial crime leader at Oliver Wyman,
Speaker 1: joins us to discuss the not just the phone call
Speaker 1: that President Biden had with President Putin yesterday, but also
Speaker 1: the relationship and the issues that Russia has right now
Speaker 1: with the West as it amasses troops on the border
Speaker 1: of Ukraine. Reportedly, Dan, thanks so much for joining us.
Speaker 1: How do you think the call went to kick it off.
Speaker 1: I mean on New Year's I'm feeling a bit light.
Speaker 1: I mean it was a perfect call for both sides. UM. Realistically,
Speaker 1: I think both Putin and Biden got their messages in
Speaker 1: where both sides can declare victory. It was largely reiterating
Speaker 1: prior points that both sides made in terms of Russian
Speaker 1: demands of what it was looking for from an assurance
Speaker 1: standpoint for security, what Biden was looking to put out
Speaker 1: there in the event that Russia escalated issues, which were
Speaker 1: largely further sanctions in the event of a further escalation
Speaker 1: into Crimea or into Ukraine. So I think realistically both
Speaker 1: sides were able to walk away with a win, and
Speaker 1: it really set the tone nicely for the talks that
Speaker 1: will commence on January ten, with kind of the working
Speaker 1: level within both governments to try and see how they
Speaker 1: can deescalate the situation. But I mean, as a reminder,
Speaker 1: this is largely a crisis of Putin's creation. There was
Speaker 1: no imminent security threat against Russia. UM. This was a
Speaker 1: pre emptive move to move troops into the Dambas and
Speaker 1: begin to threaten UM, begin to threaten the Ukrainian sovereignty, Daneen,
Speaker 1: I could exchange a dollar and get thirty six rubles
Speaker 1: in return. Now if I exchange a dollar, I get
Speaker 1: get about seventy five rubles. Really, since that crimea annexation
Speaker 1: in that really spurred a lot of those sanctions from
Speaker 1: the United States. In addition to that big drop in
Speaker 1: oil prices we saw then, the ruble has never recovered.
Speaker 1: Oil prices did, but the Russian currency didn't, and a
Speaker 1: lot of that is thanks to sanctions. Just how much
Speaker 1: further an impact can sanctions have on Russia right now?
Speaker 1: So the sanctions that were imposed in ten were very targeted.
Speaker 1: They were focused on certain aspects of the financial services,
Speaker 1: energy and defense sectors, but there is more that could
Speaker 1: be done. The threats that have been levied were a
Speaker 1: focus on potentially cutting Russian financial institutions off from global
Speaker 1: payment systems access, further sanctions to more significant oligarchs, and
Speaker 1: escalation of what President Trump did in eighteen with a
Speaker 1: number of significant oligarcs where their assets were frozen. Um
Speaker 1: there are still more sanctions that could be imposed, even
Speaker 1: on nord Stream too, in potentially cutting off the usage
Speaker 1: in Europe of the nord Stream to pipeline, which would
Speaker 1: have an adverse impact on the Russian economy. So there
Speaker 1: is still more that can be done. The sanctions were
Speaker 1: very surgical in nature. What's being threatened now is much
Speaker 1: more of a broadsword approach. What wouldn't wouldn't cutting off
Speaker 1: nord Stream to be a problem for Germany as well?
Speaker 1: I mean don't I mean clearly they rely on Russian
Speaker 1: energy supplies and isn't that a faster, cheaper way for
Speaker 1: them to get in? It is, and especially coming into
Speaker 1: the colder winter months, that's not really the best time
Speaker 1: of year to start talking about cutting off any sort
Speaker 1: of access the cheaper fuel. It is still something that
Speaker 1: the US has been pressuring its German and other European allies.
Speaker 1: Hard is one of several options and potential sanctions that
Speaker 1: could be imposed, but it is probably one that it's
Speaker 1: been less interesting to the Biden administration to push forward,
Speaker 1: and something we've seen from Congress in the US where
Speaker 1: both the Republicans and Democrats have been pushing for more
Speaker 1: action on nord Stream too, even though it's completed um
Speaker 1: and this is picking up off of an issue that
Speaker 1: wasn't dealt with properly on the Trump administration side. Dan.
Speaker 1: Beyond sanctions, another stick that US officials have waived or
Speaker 1: is the possibility of the augmentation of NATO forces should
Speaker 1: diplomacy not work. What effect would that have? Considering uh
Speaker 1: Putin's narrative has been that NATO continues to move east.
Speaker 1: I think there's no imminent threat as we understand it,
Speaker 1: of further deployment of NATO forces into Ukraine unless there
Speaker 1: is certain actions on the part of the Russians to escalate.
Speaker 1: I think there's certainly talk of using troops to bed
Speaker 1: down any sort of Russian escalation, any sort of Russian
Speaker 1: incursion into Ukraine, but that certainly seems to be a
Speaker 1: last measure. That being said, you know, we have certainly
Speaker 1: seen sanctions have impact of the Russian economy, but they
Speaker 1: certainly not necessarily scared off President Putin. President Putin seems
Speaker 1: to understand force above all else. Dan, great to get
Speaker 1: some time with you. Thanks so much for joining us um.
Speaker 1: I think we really gain a lot from your inside
Speaker 1: Daniel tennebown there of Oliver Wyman talking to us about
Speaker 1: US Russian relations, and we wish you a happy and
Speaker 1: healthy new year as well. Let's get back to the virus,
Speaker 1: because the numbers that we have seen are just eye popping.
Speaker 1: As I said, more than two million confirmed new cases
Speaker 1: in one day globally yesterday it's the fourth day in
Speaker 1: a row of more than a million. Mercedes Carnathon joins,
Speaker 1: US Vice chair at the Northwestern University Feinberg School of Medicine,
Speaker 1: Department of Preventative Medicine. And to some extent, this is
Speaker 1: prevented prevent to bowl, uh, Mercedes, Um, But we see
Speaker 1: the numbers just popping up. Is there any way to
Speaker 1: turn this around now? Or does everybody eventually get the
Speaker 1: omicron variant? You know, it's a really scary situation, and
Speaker 1: thank you for having me to talk about it. All
Speaker 1: along be known that this particular variant was highly contagious
Speaker 1: and was infecting people even before they knew they had
Speaker 1: significant symptoms. And then with it being slightly less virulent
Speaker 1: and a large proportion of our population being vaccinated, the
Speaker 1: symptoms can be so subtle that it's really spreading. I mean,
Speaker 1: I hate to I hate to say we throw in
Speaker 1: the towel and accept that everyone gets it. That's not
Speaker 1: what we want to do because we still don't know
Speaker 1: what the long term impacts will be I think we've
Speaker 1: got to double down on the masking. We've got to
Speaker 1: really emphasize and encourage vaccinations. Mercedes, when schools return next week,
Speaker 1: what should they be doing, What measures should they be
Speaker 1: taking if they are in person to prevent a spread
Speaker 1: of a variant which has been spreading exponentially. You know,
Speaker 1: that's a real concern. I've got young children who are
Speaker 1: heading back to school. I feel very strongly that they
Speaker 1: are safer in school than they are on play dates
Speaker 1: that are happening in a much more casual setting and
Speaker 1: even some general public places that you might take them
Speaker 1: to have some fun. So I think returning to school
Speaker 1: must be a priority. I think that a central strategy
Speaker 1: to keeping children safe in school is going to be testing.
Speaker 1: It's going to be surveillance testing so that you can
Speaker 1: get a picture of the background rates of the virus
Speaker 1: within the community and population of the school. And it's
Speaker 1: going to be testing symptomatic and asymptomatic people so that
Speaker 1: we can isolate them quickly. Let's talk about the isolation
Speaker 1: period for a second. We just heard from the CDC
Speaker 1: very recently that now if you are asymptomatic, you only
Speaker 1: have to quarantine for five days. It's a ruling that
Speaker 1: has had some industries, the airline industries. What I'm thinking of,
Speaker 1: really up in arms about it. What are your thoughts
Speaker 1: about simply the safety and the effectiveness of that strategy.
Speaker 1: You know, I think that when when the CDC and
Speaker 1: other organizations have to select a strategy that involves individual behavior,
Speaker 1: there are always trade offs, and it can always feel
Speaker 1: as though it's a choice between two least bad options.
Speaker 1: The reality is that the recommendation is science driven. We
Speaker 1: have seen throughout that the infectious period can be relatively short,
Speaker 1: particular a early in individuals who are vaccinated. What becomes
Speaker 1: more challenging is the unvaccinated and really needing to have
Speaker 1: separate recommendations, and the CDC chose not to do that
Speaker 1: and to make the single recommendation. Certainly upon release from isolation,
Speaker 1: masking should still be used in order to protect other individuals.
Speaker 1: All right, Mercedes, thanks so much for joining us. Really
Speaker 1: appreciate your time on this would be should be holiday
Speaker 1: on this New Year's Eve Day. Mercedes Carnathon there of
Speaker 1: Northwestern University joining us to talk about the seriousness of
Speaker 1: UH the COVID challenge that we still faced. This is
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Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg