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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 Ferrell 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. Joseph

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Speaker 1: Labornia joins US within taxas C. I'd be their chief

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Speaker 1: economists for the America's in this public service at the

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Speaker 1: White House recently, Joe Lavorgnia, I want to talk to

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Speaker 1: you about the mystery of this August. The mystery in

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Speaker 1: the Q four is is, well, how opake is your

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Speaker 1: Q four right now? It's somewhat opake. The look the

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Speaker 1: economy has done very well in the past four quarters.

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Speaker 1: GDP growth has been over twelve. But I've been of

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Speaker 1: the view that the economy was at peat growth around

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Speaker 1: Q two and things are going moderate. But even so, Tom,

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Speaker 1: I it's hard to see growth still not being really

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Speaker 1: robust in the fourth quarter. I'm more worried about growth

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Speaker 1: in two and that's what the US bond market and

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Speaker 1: global bond markets are sensing that growth is going to weaken.

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Speaker 1: Quite sharply with his bull flattening and inflation will be transitory.

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Speaker 1: That's what the markets are telling us. That's what the

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Speaker 1: markets are telling us. And is it a weakening back

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Speaker 1: to potential GDP or let's say three percent? Me what's

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Speaker 1: the level of weakening the scale you would presume this

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Speaker 1: year growth WHI thought coming in we have growth seven

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Speaker 1: maybe even eight percent. But next year I'm thinking growth

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Speaker 1: is only two percent, maybe even less, which isn't far

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Speaker 1: from the administration's longer term forecast. And that reflects the

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Speaker 1: fact that we're borrowing from the future because we've had

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Speaker 1: people that have been unable to spend until recently because

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Speaker 1: of the pandemic, they've been locked up. They brought spending forward.

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Speaker 1: We see that in goods purchases, which are about four

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Speaker 1: to five points above their long term GDP trend, and

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Speaker 1: it's been predominantly con sumption led consumption. In the last

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Speaker 1: fourteen quarters. If you look at fourteen months rather tom

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Speaker 1: from when the savings right went from thirty percent now

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Speaker 1: down to nine, we've had annualiance consumption gains of real

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Speaker 1: that's amazing. It's mostly in goods, So we're borrowing from

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Speaker 1: the future. And that's why growth next year will slow

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Speaker 1: and slow quite sharply. John. Let's take your view of

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Speaker 1: the world and I'll ask you buys the question, how

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Speaker 1: do you think the Federal Reserve operates in the kind

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Speaker 1: of environment that you've just described. They don't do anything, Jonathan.

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Speaker 1: They stay on hold, They continue to pump liquidity in

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Speaker 1: the system. They don't tape or they don't tighten. What

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Speaker 1: we've seen continually since those March late March early April

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Speaker 1: highs and tenure yields is the market pricing the terminal

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Speaker 1: rates significantly lower. That five year five year oh I

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Speaker 1: s we've talked about was around two forty back in

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Speaker 1: back in early April, thinking the market would basically or

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Speaker 1: the FED rather with tighten rates like they did in

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Speaker 1: the last cycle. And just the other day we were

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Speaker 1: below one fifty. So the market thinking that Fed does nothing.

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Speaker 1: My guess is we don't get it tightening until after

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Speaker 1: the next presidential election. John. And then this goes right

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Speaker 1: to the heart of what you mentioned before, which is

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Speaker 1: a gentleman from St. Louis disagrees, just flat out disagrees

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Speaker 1: with Joe. LaVar asked us the form ahead of research

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Speaker 1: I'm menching for the Saint Louis FED as well on

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Speaker 1: the other side of that. Try. I imagine you don't mind,

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Speaker 1: not at all. You said, no tidening, no tapering. You

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Speaker 1: don't think we get a taper here, Joe, that's not

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Speaker 1: until we know what the contours of of a budget

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Speaker 1: deal look like, because the federal treat a lack of

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Speaker 1: a deal as being contractionary. And even though we're in

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Speaker 1: the midst of of debating what happens on the infrastructure side,

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Speaker 1: the bigger part of the packages is family welfare bill,

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Speaker 1: and we're not gonna know what that looks like if

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Speaker 1: we get it, and it will likely be to reconciliation

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Speaker 1: until maybe mid October early November. So no, I think

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Speaker 1: the Fed's gonna sit and wait and see how things evolve.

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Speaker 1: And it's gonna be really hard, Jonathan, for the FED

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Speaker 1: to taper in a slower growth environment, and especially if

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Speaker 1: over the next few months and the job growth slows,

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Speaker 1: which I expected. Fascinating at least this one't be lost

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Speaker 1: on you. No tapering the other code there, no right

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Speaker 1: hike until after the next election. Yes, that's why. One

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Speaker 1: of the things you know that sounds aggressive but if

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Speaker 1: you look at the last two cycles, the average time

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Speaker 1: from the last rate cut to the first rate hike

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Speaker 1: with seven years, So this isn't really that unusual if

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Speaker 1: you look at the last couple of cycles. So, Joe,

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Speaker 1: why are some people wrong who are saying that the

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Speaker 1: balance of risks is too much higher inflation, especially with

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Speaker 1: the FEDS so devish and so willing to wait. What

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Speaker 1: is wrong with that call? Because it seems like you disagree. Yeah, Well,

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Speaker 1: the thing is, we've never had a basically a global

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Speaker 1: lockdown of the economy where we've gotten these bottlenecks, and

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Speaker 1: of course demand has been much stronger than people expect

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Speaker 1: that the government has provided a tremendous amount of assistance,

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Speaker 1: So it's easy to see why prices are rising if

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Speaker 1: there's a concern on inflation, and if I'm wrong on inflation,

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Speaker 1: it's because perhaps we we just spend too much, is

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Speaker 1: a sort of the Larry Summer's argument, and maybe evidence

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Speaker 1: of that is seen in what the CBO next year

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Speaker 1: was saying. The output gap looks like there's forecasting an

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Speaker 1: output gap of all two and forty basis points, meaning

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Speaker 1: the economy is two points above its long term potential

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Speaker 1: that's the highest in seventy one. So it is possible

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Speaker 1: if we get more fiscal stimulus, you could build this

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Speaker 1: inflation dynamic in the system. But I think most people

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Speaker 1: just aren't fully appreciative of the unique situation where and

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Speaker 1: the fact that much of the liquidity we've had to

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Speaker 1: this point has gone into assets, both equities and of

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Speaker 1: course real estate. Jo I had to use the word transitory.

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Speaker 1: But let's talk transitory and at what point you start

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Speaker 1: to look past some of the near term influences on

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Speaker 1: the economy. I'm talking about supply chain disruptions. The gentleman

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Speaker 1: from St. Louis, as Tom said, was highlighting this is

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Speaker 1: one feature that forces monetary policy makers to be more nimble.

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Speaker 1: How do you factor in some of these disruptions that

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Speaker 1: seem overly persistent and persisting longer than many people had expected. Yeah,

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Speaker 1: I would just say I would just give it time.

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Speaker 1: I mean the thing as we saw with lumber, for example,

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Speaker 1: which was the poster child for bottlenecks, where prices have

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Speaker 1: basically collapsed as the mills were able to reopen. And

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Speaker 1: I've argued we're going to see that more on the

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Speaker 1: semiconductor side and other parts of the economy. It just

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Speaker 1: needs to take time. The expectation side, if it's important,

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Speaker 1: and we look at and when we look at the

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Speaker 1: tips curve, that tips curve is actually inverted. So it's

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Speaker 1: not saying the markets are always right. There's just no

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Speaker 1: evidence that anybody believes this is permanent. And because expectations

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Speaker 1: oftentimes can be self feeding and self sustaining. Uh, those

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Speaker 1: expectations are very likely to keep inflation low and then

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Speaker 1: as supply comes on, you'll start to see those prices moderate. Joe,

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Speaker 1: None of this is in the economic textbooks, Advass. This

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Speaker 1: is all absolutely original that we're dealing with right now.

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Speaker 1: How do you interpret the real yield? Are you looking

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Speaker 1: at the nominal rate? Are you taking out the inflation expectation?

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Speaker 1: Which of those two dynamics will adjust the real yield? Well, this,

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Speaker 1: I would say, just focus on the real yield. The

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Speaker 1: real yield has been falling as inflation expectations have edged

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Speaker 1: up of it, and that sort of evidence tom right there.

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Speaker 1: The market does not believe that you're gonna have very

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Speaker 1: very strong growth going forward. It's the I hate to

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Speaker 1: say these words, but it's the secular stagnation thesis. That's

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Speaker 1: really what the market saying, and you see it more

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Speaker 1: broadly just in the slope of the curve, as you

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Speaker 1: highlighted both in the US and Germany and elsewhere, you've

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Speaker 1: got a bull flattening of the yield curve. So that's

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Speaker 1: really not an inflation story. It's a growth story. And

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Speaker 1: of course equities benefit from the fact that there aren't

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Speaker 1: any alternatives, and it's a tremendous amount of liquidity in

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Speaker 1: the market. Jo fantastic to catch up some really interesting things.

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Speaker 1: Really gets ahead from you said that takes a c

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Speaker 1: I being chief economists for the Americans joining us now

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Speaker 1: on the Dow Jones Industrial average of Michael Holland with

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Speaker 1: Holland and Company and their chairman, knowing that the standard

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Speaker 1: force is more indicative of what's going on Michael Holland.

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Speaker 1: I want to ask you lu U Kaiser question, and

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Speaker 1: I say this with great respect to the sweat of

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Speaker 1: Wall Street week years and years ago when fear was ascended.

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Speaker 1: The way we saw fear in our equity ownership is

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Speaker 1: to extrapolate out what successful companies do. How far out

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Speaker 1: are you extrapolating right now on the companies you believe

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Speaker 1: it are you out six months? Are you out six years?

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Speaker 1: More like the years than the months time. But I

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Speaker 1: think there are fewer and fewer companies that one can

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Speaker 1: zero in on and say I think this is worth

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Speaker 1: the risk of losing money because the potential for the

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Speaker 1: upside is so significant. There is enough cacophony around about

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Speaker 1: the economy, the FED, China, COVID and on that companies

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Speaker 1: like Tyson what you were just talking about are indicating

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Speaker 1: the world continues to change under our feet. Yet in

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Speaker 1: the markets, because of the the tsunami of cash that

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Speaker 1: has come over the markets over the best few years,

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Speaker 1: we have pricing that we've lost price discovery, we've lost

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Speaker 1: a real rate of return to use, free rates of

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Speaker 1: return to use for econometric modeling. So the fet is flying,

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Speaker 1: it's flying, is the rest of us? Interesting to me? Michael,

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Speaker 1: how willing investors seem to be just isolated problem a

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Speaker 1: problem emerges, they can put it over there to one

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Speaker 1: side and say it won't bother us too much. And

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Speaker 1: a great example of this you mentioned China. This is

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Speaker 1: what Dan Ives of wet Bush had to say. My

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Speaker 1: producer Jamie Ping this across to me in the last

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Speaker 1: couple of minutes. This is what Dan I've says. We

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Speaker 1: believe these dynamics will yet again bode well for US

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Speaker 1: tech stocks, as the favorable backdrop and rotation away from

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Speaker 1: Chinese tag into US tech creates an avana set up. So, Mike,

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Speaker 1: we used to say a couple of years ago, what

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Speaker 1: hurts some would hurt everyone because we're all buying the

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Speaker 1: same basket of goods. Now we've got people saying, what

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Speaker 1: hurts China will actually benefit US Tech. Let's rotate even

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Speaker 1: harder into them. What do you make of that dynamic?

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Speaker 1: Either dynamic is reflective of the market that has gone

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Speaker 1: a negorably upward, Johnathan over the last several years. And

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Speaker 1: I think the looking for the positive outcome is something

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Speaker 1: that I'm always prepared to do. And in the case

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Speaker 1: of China, I think, uh, it would be a fool

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Speaker 1: there and to to ignore what's going on. They're a

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Speaker 1: wonderful piece in Bloomberg Intelligence yesterday on the ternal about

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Speaker 1: the thing that's different about China today in contrast to

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Speaker 1: the last forty years and most of which I spent

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Speaker 1: going over there, is that they now remember that their communists.

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Speaker 1: And when they remember their communists, you end up with

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Speaker 1: a situation where you're not doing things as as they've

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Speaker 1: been doing for the last which which created Ali Baba,

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Speaker 1: which created the opportunity for people make tons of money,

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Speaker 1: but now are now becoming political and warrior like. So

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Speaker 1: Michael folded into an investment thesis. If price discovery has

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Speaker 1: gone away, if we have China that matters more broadly,

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Speaker 1: what are you doing right now? Being very careful and

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Speaker 1: Lisa and and actually we've we've kidded before about the

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Speaker 1: all Weather portfolio. But I think the as you the

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Speaker 1: three of you opine daily, they're things that don't make

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Speaker 1: a lot of sense, can't be explained in terms of

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Speaker 1: where prices are. You have a five percent earnings yield

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Speaker 1: the flip of the reciprocal of the price earnings on

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Speaker 1: the markets in the US, and less than a two

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Speaker 1: percent ten year treasury with inflation looking like it's going

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Speaker 1: to be sticky. It's somewhere around four to five to six,

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Speaker 1: and or maybe two to three to four. But these

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Speaker 1: things don't make sense. So what what what I do

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Speaker 1: is try to identify properties that are useful. Tom asked

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Speaker 1: the question about weeks and months or Jonathan as well, Um,

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Speaker 1: you buy properties. I would say that the companies like

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Speaker 1: General Motors, which I've been looking at recently in the

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Speaker 1: last several months, I have have a plethora of things

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Speaker 1: that could could go right, but evaluation that doesn't reflect

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Speaker 1: the overall markets, so the risk, but there are fewer

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Speaker 1: of those. They're just it's hard to do. Michael Holan,

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Speaker 1: do you do some of the parts analysis on companies

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Speaker 1: that have different sections they're not lying tempko vote? Michael, you,

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Speaker 1: you and I are the only ones listening for watching

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Speaker 1: that no what l t V is. But if they're

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Speaker 1: not linked Tempo vote, do you still do some of

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Speaker 1: the parts, say on Amazon, Apple or some stock. I

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Speaker 1: don't know absolutely. It's it's interesting that you even have

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Speaker 1: to ask the question, because that's what value is. If

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Speaker 1: the three of us and the four of us, I

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Speaker 1: should say, we're looking at something to buy in the

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Speaker 1: in the private market, we look at what is it worth?

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Speaker 1: What are we willing to pay for it? And and

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Speaker 1: in the public market people have gone away from do

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Speaker 1: we just which you describe. Jimmy Ling and the LTV

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Speaker 1: crowd figured figure that out a long time ago. That

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Speaker 1: but prices were so low back then in a lot

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Speaker 1: of cases that you could find out that if you

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Speaker 1: look at you listening to as genteral motors today, if

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Speaker 1: you look at the the uh, the different kinds of

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Speaker 1: businesses they're in um in technology, any individual one of

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Speaker 1: those a few years from now could be worth a

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Speaker 1: gazilla amount of money. But they're trying to do that

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Speaker 1: to further the businesses. But but yes, uh, you do

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Speaker 1: still have companies like General Morris that afford that opportunity

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Speaker 1: to look at maybe they're some of the parts it's

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Speaker 1: really worth a lot more than what the market's paying

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Speaker 1: for them. But not too many of them anymore. Micro

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Speaker 1: legend and it's always great a cant shop. We appreciate

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Speaker 1: your time, Michael Holling that Holland and Couch chairman and

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Speaker 1: I have joined us now whilst founder Security is equity strategist,

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Speaker 1: So and let's talk about that. What does it mean

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Speaker 1: for an equity investor the incoming economic data at the moment,

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Speaker 1: I think what it means for us is that it

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Speaker 1: can be interpreted sort of how you want to see

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Speaker 1: the picture in the eye of the beholder. What I

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Speaker 1: mean by that is that sometimes you look at the

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Speaker 1: economic data, you can be really concerned it's growth slowing down.

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Speaker 1: Is the amplitude of future economic GDP growth slowing down?

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Speaker 1: Will that extend the cycle? And in that case is

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Speaker 1: that of concern? And why it? Maybe yields are pulling

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Speaker 1: back because people have a concern about whether full employment

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Speaker 1: can be reached sooner. On the other hand, there are

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Speaker 1: a lot of still bright spots in that economic data

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Speaker 1: that support this reflation trade. I think it depends which

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Speaker 1: camp you're in. And your research note is fascinating and

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Speaker 1: its physics where you talk about amplitude, I want to

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Speaker 1: take it over to an even larger idea of magnitude

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Speaker 1: for the bulls out there in the equity market. What

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Speaker 1: are the magnitudes that get you out to the emotion

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Speaker 1: of sp X five thousand or the emotion of DALT

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Speaker 1: forty thousand. You know, those are big, beautiful round numbers, Tom,

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Speaker 1: and people love those shiny numbers. I think to get there,

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Speaker 1: what you really need to see maybe two fronts. One

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Speaker 1: is that when you have these kind of yields retreating,

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Speaker 1: you see this kind of natural effect for a discounting

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Speaker 1: model for equity growth, for equity earnings. But on the

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Speaker 1: other hand, that comes with this sort of ominous side

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Speaker 1: of book growth is slowing down? Is it sustainable? But

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Speaker 1: to get that yield, people may be reaching into equities

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Speaker 1: on the other hand, to really push equities. And I

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Speaker 1: think what's been driving it more recently is expectations and estimates.

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Speaker 1: As we've gone through earning season, you've seeing corporates very

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Speaker 1: focused on what do these input costs mean from my margins?

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Speaker 1: And for the companies that are able to pass along

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Speaker 1: that price and those margins can remain fat, then you

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Speaker 1: see that they're able to continue seeing some price appreciation.

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Speaker 1: I think it's that upward expectation and estimate revisions that

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Speaker 1: we're really keeping an eye on to get there and specifically,

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Speaker 1: just to dig in a little bit more. Anna, you

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Speaker 1: noted in your recent research the earnings estimate revisions continue

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Speaker 1: to entire, especially for value sectors. So why is this

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Speaker 1: not being reflected in our performance of these particular areas

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Speaker 1: where you see growth surge ahead over the past month

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Speaker 1: or so, I think growth surgeons recently has been a

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Speaker 1: bit of that move in nominal yield. And what's interesting

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Speaker 1: is that nominal yield move has been driven by real yields,

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Speaker 1: but the inflation expectation baked in at least the tenure

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Speaker 1: has remained more rather steady, So you see this growth

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Speaker 1: trade has had resurgence and zeals pulled back. The question

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Speaker 1: for these value stocks is is this reflation going to

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Speaker 1: be a concern? And that uncertainty I think still weighs

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Speaker 1: on it, that additional risk premium that you have to

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Speaker 1: bag in. But when you look at estimates, you're right,

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Speaker 1: these value sectors are really what's pushing the estimate revisions.

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Speaker 1: And if that continues, and if that expectations or these

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Speaker 1: revisions can continue outpacing what investors want out of it,

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Speaker 1: I think you will see that eventual appreciation later down

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Speaker 1: the road. And what leads to the downdraft you entertain

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Speaker 1: With Chris Harby looking for thirty eight fifty on SMP,

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Speaker 1: we've had the forty seven view just about an hour ago.

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Speaker 1: What's the thirty eight fifty view. Well, if you remember

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Speaker 1: us coming into the year, we talked about low volatility

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Speaker 1: and defensive strategies come summer, and look what's happened in

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Speaker 1: the recent month. We recommended a tactical pivot into low

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Speaker 1: volatility strategy in the style because a pullback in yield

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Speaker 1: could cause some of that volatility, and for us right now,

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Speaker 1: it's not that necessarily our longer term view on reflation

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Speaker 1: has yet changed, but we like to say be careful

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Speaker 1: of perception becoming reality. Once the market really starts to

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Speaker 1: doubt the potential for reflation, the potential for growth, that

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Speaker 1: can kind of spiral out of control. So for us,

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Speaker 1: the reason we remain cautious is that we're seeing signs

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Speaker 1: of concern and that can really have a sort of

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Speaker 1: uh negative and spreading effect amongst investors. So it keeps

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Speaker 1: us a little bit more cautious than on our toes

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Speaker 1: earlier this year, and we were pointing to retail investors

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Speaker 1: is the potential swing trader when it came to certain

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Speaker 1: big moves in equity markets. Are they still players or

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Speaker 1: have they all gone back to taking vacations and not

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Speaker 1: dealing with the robin hood accounts? Well, I think they

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Speaker 1: are definitely still a player, and they may be even

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Speaker 1: growing as we go several years forward. However, for now,

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Speaker 1: I think a lot of the flows you're seeing, and

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Speaker 1: that's been dominating more on the fixed income markets has

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Speaker 1: been our institutional side has been your bigger fishes or

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Speaker 1: whales in the ocean here. But when you look at equities,

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Speaker 1: a lot of this sort of risk taking, a risk

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Speaker 1: um seeking was pulled back last month given the additional

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Speaker 1: concern about potential for full employment to be a bit

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Speaker 1: further down the road, and as at risk appetite wanes.

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Speaker 1: I think you may see the retail crowdbe a little

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Speaker 1: quieter and maybe be a little may sit down a

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Speaker 1: little bit in the stands and it gets to catch up.

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Speaker 1: Always good to hear from you and I hand there

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Speaker 1: of wilst Fargo's equity strategist with Chris Harvey, and that's

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Speaker 1: saying this is an important conversation and it may surprise

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Speaker 1: you that it's our conversation of the day. We're trying

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Speaker 1: to recalibrate equities and economics into the litmus paper of

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Speaker 1: the system, which is yield. And John Farrell, you've talked

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Speaker 1: about global yields as being as important in their interdependencies

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Speaker 1: as the US tenure benchmark. Yeah, let's get some part

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Speaker 1: of Gavy on that song. Hanji had a global jet

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Speaker 1: and strategy part. Oh, let's talk about ten year year

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Speaker 1: old so they shouldn't be down here in the treasury market.

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Speaker 1: Then you look to Germany, and yesterday the whole curve

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Speaker 1: below zero, beneath zero. Part of how important is that dynamic,

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Speaker 1: the European dynamic, that gravitational pull yield to lower. Oh,

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Speaker 1: it's absolutely vital, it's it's it's I mean, this is

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Speaker 1: an incredible set of circumstances. But you can't get away

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Speaker 1: from the fact that the treasure yield is the global bounchmark.

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Speaker 1: And as we're sitting here today, we're looking at that

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Speaker 1: tenuere heading towards and towards one was sent. And I

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Speaker 1: think the big lesson here for Europe is and Europe

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Speaker 1: never really recovered from the global financial crisis as measured

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Speaker 1: by monetary policy. I mean, it's just still negative. Jewey

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Speaker 1: is as aggressive as it's ever been. The only hole

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Speaker 1: for Europe is that the US manages to repeat what

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Speaker 1: it did post the Great Financial Crisis. Stop buying government bonds,

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Speaker 1: raise rates, get back to suns some elements of normality.

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Speaker 1: Is what I see in Europe is a loss of

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Speaker 1: hope because if the US can't do us, how can

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Speaker 1: your do what I haven't done it before? A loss

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Speaker 1: of hope? And is that the message from the sixteen

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Speaker 1: point five trillion dollars of negative yielding debt, the highest

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Speaker 1: volume globally since February. Is this representing a loss of hope?

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Speaker 1: You know what, You've got to break this out as

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Speaker 1: to whether the market discount is telling us something about

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Speaker 1: the future or whether the market is being pushed there

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Speaker 1: by an excess demand for fixed income. And I think

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Speaker 1: it's a bit of both. In a sense, there is

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Speaker 1: a loss of hope because we've got to accept that

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Speaker 1: the marketplace, the bond market, is a discount function. But

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Speaker 1: at the same time, we know center banks are huge

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Speaker 1: buyers of government bonds, persistent virus of government bonds, and

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Speaker 1: that's a major catalyst behind this fallen yields. Everybody wants

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Speaker 1: to be on the same side as a center bank,

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Speaker 1: and as long as central banks are buying bonds, that's

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Speaker 1: the side want to be on. Hence we find ourselves

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Speaker 1: in this incredible situation, very deviant from where microcircumstances are park.

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Speaker 1: You know, we're all talking yield here, but this is

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Speaker 1: a time where I flipped a price and the answer

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Speaker 1: is there's a massive bid on all this paper. Is

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Speaker 1: it similar to two thousand five, in two thousand six,

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Speaker 1: or there a different character to the bid, the insatiable

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Speaker 1: desire to move price up on fixed income. There's a

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Speaker 1: whole series of players out there tomb that are buying

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Speaker 1: fixed income. And you know it's not just guys buying bombs,

401
00:21:36,840 --> 00:21:39,840
Speaker 1: it's also corporate setting up fixed rate receivers where they

402
00:21:39,880 --> 00:21:43,040
Speaker 1: swapp from paining fixed to pain floating because they feel

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Speaker 1: that by pain floating they're going to get the cheapest

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Speaker 1: funding and the the the the prognosis in terms of

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Speaker 1: rate high risk is really quite dim. So um, what

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Speaker 1: I see is an excessive amount of treasuries and we

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Speaker 1: see a lot of buying out of Tokyo for example.

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Speaker 1: And you know I've said it before, if you're sitting

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Speaker 1: in Tokyo, you don't care what US inflation is as

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00:22:06,440 --> 00:22:11,399
Speaker 1: long as it's not yields um. And that's the stuff

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Speaker 1: I mean. If if the simplest explanation, where we where

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Speaker 1: we are as an excess of the amount of supply

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Speaker 1: for fings income. But it poses problems that the FED

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Speaker 1: has have not spoken about this, but they will not

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Speaker 1: be happy to see the ten year approach and one

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Speaker 1: per saon it makes life very difficult for them. They

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Speaker 1: should stop buying tips then shouldn't they park and we

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Speaker 1: stopped talking about real year, It wouldn't we wouldn't we

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Speaker 1: have an adjustment? No, I mean I'm asking you the question,

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Speaker 1: how how distorted that market is right now? Well, the

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Speaker 1: the the the entire spectrum of racists is the stort.

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Speaker 1: I mean minus a hundred basis points is an absolute distortion.

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Speaker 1: M one percent potentially for the tenure is a distortion.

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Speaker 1: And here's the thing. Uh, the Fed wants to hide rates,

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Speaker 1: not now, but they will want to hide rates. You

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Speaker 1: can't hide rates for the tenure of one percent as

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00:23:00,160 --> 00:23:04,359
Speaker 1: you're you're just gonna win breath the curve. So they

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Speaker 1: want to get that ten year up to two percent. Ideally,

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Speaker 1: the way to do thus here and now is don't taper,

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00:23:11,440 --> 00:23:15,440
Speaker 1: just stop stop flying government moms. Will they do that? Unlikely,

431
00:23:15,600 --> 00:23:19,000
Speaker 1: but that's what they probably should do. Probably he's gonna

432
00:23:19,040 --> 00:23:20,960
Speaker 1: catch you up. Auntie had a glove with dead and

433
00:23:21,000 --> 00:23:29,960
Speaker 1: write strategy. This is a joy, and it is a joy, John,

434
00:23:30,000 --> 00:23:32,359
Speaker 1: when you are weaned out of Indiana as part of

435
00:23:32,400 --> 00:23:35,600
Speaker 1: my family was David ricks Is with Eli Lily, their chairman,

436
00:23:35,960 --> 00:23:40,040
Speaker 1: their chief executive officers, celebrating his twenty five year with

437
00:23:40,160 --> 00:23:43,800
Speaker 1: the company. The ricks Era going back to his first

438
00:23:43,840 --> 00:23:47,480
Speaker 1: day darkening the door is ninth excuse me, twelve percent

439
00:23:48,200 --> 00:23:50,480
Speaker 1: per year in the last ten years of stock is

440
00:23:50,520 --> 00:23:54,400
Speaker 1: Home Depot and Apple like per year. It has been

441
00:23:54,440 --> 00:23:58,840
Speaker 1: an extraordinary move, David, David Ricks, I want to talk

442
00:23:59,080 --> 00:24:02,880
Speaker 1: about where you are now with COVID. There's some sensitivities

443
00:24:03,480 --> 00:24:06,240
Speaker 1: here with the antibodies and that when you're meeting with

444
00:24:06,359 --> 00:24:09,800
Speaker 1: your head of research and science Daniel Skovronsky as well,

445
00:24:10,200 --> 00:24:12,840
Speaker 1: when you look back at the last eighteen months on

446
00:24:12,960 --> 00:24:16,560
Speaker 1: COVID and you look forward to the next eighteen months

447
00:24:16,560 --> 00:24:19,960
Speaker 1: with this horrific pandemic, what have you learned and what's

448
00:24:19,960 --> 00:24:22,800
Speaker 1: that to do right now for Eli Lily in this

449
00:24:22,960 --> 00:24:27,080
Speaker 1: horrific pandemic. Yeah, Tom, thanks for having me on and

450
00:24:27,359 --> 00:24:29,720
Speaker 1: Dan's a key partner for us, and as a science

451
00:24:29,800 --> 00:24:32,600
Speaker 1: driven company, you know that those meetings happen a lot.

452
00:24:32,600 --> 00:24:35,680
Speaker 1: As we were talking offline, um COVID. We've had a

453
00:24:35,720 --> 00:24:37,440
Speaker 1: lot of ops and downs with COVID. You know, last

454
00:24:37,520 --> 00:24:41,320
Speaker 1: year we had a lot of unknowns about where how

455
00:24:41,359 --> 00:24:44,399
Speaker 1: this would progress, and we set to work to create

456
00:24:44,440 --> 00:24:46,800
Speaker 1: therapies because that's what we do. We're not a vaccine

457
00:24:46,840 --> 00:24:49,280
Speaker 1: company that could be helpful, and we did that. I

458
00:24:49,320 --> 00:24:53,440
Speaker 1: think we're very proud of that. We launched Neutralizing Antibodies UM,

459
00:24:53,600 --> 00:24:57,280
Speaker 1: both a single and then a combo UM. And we

460
00:24:57,359 --> 00:25:00,359
Speaker 1: also have developed one of our anti inflammatory medica aaitions,

461
00:25:00,640 --> 00:25:03,720
Speaker 1: Alluvian or Barrasitani, which actually today we read out results

462
00:25:03,760 --> 00:25:07,280
Speaker 1: that in those on ventilation or ECMO, the most advanced

463
00:25:07,320 --> 00:25:11,399
Speaker 1: patients in the hospital reduced death by over UM. But

464
00:25:11,480 --> 00:25:13,560
Speaker 1: we just wanted to, you know, put our tools to

465
00:25:13,600 --> 00:25:16,240
Speaker 1: work to be helpful. You know, our ongoing business is

466
00:25:16,520 --> 00:25:20,520
Speaker 1: about treating other diseases. Were not a virology company UM,

467
00:25:20,640 --> 00:25:24,240
Speaker 1: and so as as the the pandemic has ebbed and

468
00:25:24,560 --> 00:25:28,920
Speaker 1: waned UM, those businesses have come back strongly UM as

469
00:25:28,960 --> 00:25:33,840
Speaker 1: treatment for diabetes and cancer has improved. What's doctor's office

470
00:25:33,920 --> 00:25:37,640
Speaker 1: is open UM. You know, we don't think about ourselves

471
00:25:37,720 --> 00:25:40,280
Speaker 1: as as a COVID company, but we were happy to

472
00:25:40,280 --> 00:25:43,240
Speaker 1: make a boy contribution and this year you know that

473
00:25:43,240 --> 00:25:45,520
Speaker 1: that ended up in a fair amount of sales. Although

474
00:25:45,520 --> 00:25:47,840
Speaker 1: in the second half you mentioned the guidance being narrowed

475
00:25:47,840 --> 00:25:51,080
Speaker 1: on the on the year, that's really about reducing COVID

476
00:25:51,119 --> 00:25:55,639
Speaker 1: related antibody sales and increasing UM. The performance of our

477
00:25:55,800 --> 00:25:59,919
Speaker 1: underlying business. We do expect that as these waves happened,

478
00:26:00,000 --> 00:26:02,280
Speaker 1: they will begin to subside, each one will be lower

479
00:26:02,720 --> 00:26:06,080
Speaker 1: and a new sense of normalcy will set in. Right now,

480
00:26:06,119 --> 00:26:08,679
Speaker 1: we have a problem in the US, but but you know,

481
00:26:08,720 --> 00:26:10,440
Speaker 1: we think there's a way to fix it. Get everyone back,

482
00:26:10,600 --> 00:26:14,199
Speaker 1: diep Ricks, tell me about Alzheimer's. An absolute uproar in

483
00:26:14,280 --> 00:26:18,679
Speaker 1: Washington about the need for a solution, the whole FDA thing.

484
00:26:18,720 --> 00:26:22,080
Speaker 1: I get that. Fine, you guys going back to insulin.

485
00:26:22,680 --> 00:26:26,480
Speaker 1: Get these horrific diseases correct. What are you gonna do

486
00:26:26,600 --> 00:26:31,639
Speaker 1: to help our listeners and viewers with Alzheimer's? Yeah? Thanks.

487
00:26:31,960 --> 00:26:34,040
Speaker 1: This is an area that's very personal to many of

488
00:26:34,119 --> 00:26:36,000
Speaker 1: us that Lily and our scientists have been working for

489
00:26:36,040 --> 00:26:39,119
Speaker 1: over thirty years to try to create a medicine that

490
00:26:39,119 --> 00:26:42,040
Speaker 1: could slow the progression of this disease. You may know this,

491
00:26:42,119 --> 00:26:44,960
Speaker 1: but it's the sixth leading killer, it's a fatal disease,

492
00:26:45,640 --> 00:26:47,480
Speaker 1: and it's the only one in the top ten without

493
00:26:47,480 --> 00:26:51,439
Speaker 1: a medication that slows it down. Um. Recently, UH the

494
00:26:51,560 --> 00:26:55,200
Speaker 1: f d A shifted their policy. They said, look um

495
00:26:55,200 --> 00:26:59,119
Speaker 1: showing an ultimate benefit and a slow moving, difficult disease

496
00:26:59,119 --> 00:27:02,360
Speaker 1: that we don't fully understand has been hard to prove

497
00:27:02,440 --> 00:27:06,119
Speaker 1: drugs on This is really important, Mr Ricks, do you

498
00:27:06,200 --> 00:27:10,360
Speaker 1: support that shift in f d A policy. So, look,

499
00:27:10,400 --> 00:27:13,040
Speaker 1: the regulator needs to make that decision about risk and benefit.

500
00:27:13,080 --> 00:27:16,480
Speaker 1: But of course we believe that amyloid reduction leads to

501
00:27:16,840 --> 00:27:19,520
Speaker 1: slowing of the disease. We've been betting on that for

502
00:27:19,600 --> 00:27:22,560
Speaker 1: some time and put billions behind it in research, and

503
00:27:22,600 --> 00:27:24,720
Speaker 1: now we have a leading product in that area, don't

504
00:27:24,720 --> 00:27:28,119
Speaker 1: atom ab which had the first ever clinical trial and

505
00:27:28,240 --> 00:27:31,320
Speaker 1: humans read out positive in Q one. So we have

506
00:27:31,400 --> 00:27:34,080
Speaker 1: launched a bigger study and we said in Q two

507
00:27:34,080 --> 00:27:37,360
Speaker 1: we're planning to submit this year under that new policy,

508
00:27:37,760 --> 00:27:41,240
Speaker 1: and we think patients deserve access to that medication, but

509
00:27:41,440 --> 00:27:44,520
Speaker 1: we're going to prove its worth just in the following year.

510
00:27:44,560 --> 00:27:46,679
Speaker 1: We have a huge study going on that we just

511
00:27:46,680 --> 00:27:50,719
Speaker 1: said is is almost enrolled and we'll prove that benefit. David,

512
00:27:50,960 --> 00:27:54,000
Speaker 1: the biogen drug was incredibly controversial when it came out,

513
00:27:54,080 --> 00:27:57,040
Speaker 1: in large part because of its price, in addition to

514
00:27:57,240 --> 00:27:59,919
Speaker 1: the f d A policy which did seem controversially if

515
00:28:00,040 --> 00:28:02,920
Speaker 1: within the FDA panel, how do you plan to be

516
00:28:02,960 --> 00:28:06,200
Speaker 1: different with your Alzheimer's drug in terms of the controversy

517
00:28:06,240 --> 00:28:08,520
Speaker 1: in terms of the pushback and frankly in terms of

518
00:28:08,560 --> 00:28:12,000
Speaker 1: the price point. But we're not gonna announce the pricing today,

519
00:28:12,000 --> 00:28:13,920
Speaker 1: but I'll just point out I mean, we we tend

520
00:28:13,920 --> 00:28:17,280
Speaker 1: to compete aggressively in all the markets were in and

521
00:28:17,320 --> 00:28:20,760
Speaker 1: that benefits patients. And we compete by creating better molecules,

522
00:28:20,800 --> 00:28:24,320
Speaker 1: better medicines themselves with different properties. In this case, are

523
00:28:24,800 --> 00:28:28,560
Speaker 1: medicine works very rapidly to clear plaques. By one year,

524
00:28:28,600 --> 00:28:31,760
Speaker 1: almost the vast majority of patients in our study no

525
00:28:31,840 --> 00:28:34,320
Speaker 1: longer needed to take the drug. They had cleared all

526
00:28:34,359 --> 00:28:37,040
Speaker 1: the plaque in their brain. UM. That's different from all

527
00:28:37,040 --> 00:28:41,960
Speaker 1: the other antibodies being studied, which are really lifetime therapies. UM. Secondly,

528
00:28:42,320 --> 00:28:44,360
Speaker 1: we compete on data and this is important here, and

529
00:28:44,400 --> 00:28:48,320
Speaker 1: I think the source of the controversy. Few argue that

530
00:28:49,320 --> 00:28:52,920
Speaker 1: the approved drug might have worth. I think the big

531
00:28:53,040 --> 00:28:57,120
Speaker 1: argument is did they prove they had worth? Um? Did

532
00:28:57,120 --> 00:29:00,320
Speaker 1: it really affect the disease? UM. Of course, we aremitted

533
00:29:00,360 --> 00:29:03,520
Speaker 1: to complete the study. That's that's now basically enrolled. Will

534
00:29:03,560 --> 00:29:06,160
Speaker 1: we'll finish enrollment this quarter UM, and we'll have that

535
00:29:06,240 --> 00:29:09,120
Speaker 1: date in twenty three, which is pretty short period of time.

536
00:29:09,160 --> 00:29:12,400
Speaker 1: In the trajectory of drug development. And finally, we will

537
00:29:12,480 --> 00:29:16,240
Speaker 1: compete on value in the marketplace. And when we hopefully

538
00:29:16,280 --> 00:29:19,080
Speaker 1: get our approval sometime next year, we'll we'll talk about

539
00:29:19,120 --> 00:29:21,640
Speaker 1: our our our prices. Just quickly a minute on the clock.

540
00:29:21,720 --> 00:29:26,160
Speaker 1: Are you requiring your employees to be vaccinated? Not? At

541
00:29:26,200 --> 00:29:29,240
Speaker 1: this time, we're not. We believe we have very high

542
00:29:29,320 --> 00:29:32,680
Speaker 1: rates of vaccination in our population. But we're tracking that

543
00:29:32,760 --> 00:29:36,600
Speaker 1: issue very closely. And of course, new information just released

544
00:29:37,120 --> 00:29:40,440
Speaker 1: in the US about the transmissibility of the delta virant

545
00:29:40,760 --> 00:29:44,479
Speaker 1: variant um from those that are actually vaccinated is of

546
00:29:44,920 --> 00:29:47,440
Speaker 1: UH concerned. We're analyzing that as we look at our

547
00:29:47,480 --> 00:29:51,440
Speaker 1: policy today. We've had a very few, if not zero,

548
00:29:52,080 --> 00:29:56,160
Speaker 1: in many of our facilities, uh transmission of the disease

549
00:29:56,760 --> 00:29:59,200
Speaker 1: and and so it hasn't been a real problem force

550
00:29:59,240 --> 00:30:01,920
Speaker 1: in h running our business. But we want to look

551
00:30:01,920 --> 00:30:04,640
Speaker 1: at that and stay abreast of the latest information. Is

552
00:30:04,640 --> 00:30:06,560
Speaker 1: going to catch up and get your view this morning,

553
00:30:07,280 --> 00:30:10,720
Speaker 1: NY Chairman, CEO you as well. Seven. This is the

554
00:30:10,720 --> 00:30:15,400
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays

555
00:30:15,440 --> 00:30:18,560
Speaker 1: from seven to ten a m. Eastern on Bloomberg Radio

556
00:30:18,800 --> 00:30:22,400
Speaker 1: and on Bloomberg Television. Each day from six to nine

557
00:30:22,440 --> 00:30:26,880
Speaker 1: am for insight from the best in economics, finance, investment,

558
00:30:27,000 --> 00:30:32,040
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

559
00:30:32,120 --> 00:30:35,920
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on

560
00:30:36,040 --> 00:30:40,240
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg