WEBVTT - Surveillance: Omicron Uncertainty With Ward 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Ley. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.280 international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.200 dot Com and of course on the Bloomberg terminal. Let's 0:00:29.200 --> 0:00:31.319 get to an investor, Homward wars Seat I OT of 0:00:31.360 --> 0:00:34.040 Growth Eanquities at Capelly Funds. How would I start right here? 0:00:34.080 --> 0:00:35.960 From what you've heard? And that can change? But what 0:00:35.960 --> 0:00:41.879 you've heard so far? Is this a game changing for you? A? Right? Jonathan? Um? Well, 0:00:41.880 --> 0:00:46.639 I'll tell you yesterday, Um, I was very optimistic because 0:00:46.800 --> 0:00:49.280 the message that I was getting yesterday was that the 0:00:49.360 --> 0:00:53.800 existing existing vaccines would be fairly efficacious against the new 0:00:53.880 --> 0:00:57.440 variant um and the data that we do have, which 0:00:57.480 --> 0:01:03.000 is at of the country fact of those people over 0:01:03.160 --> 0:01:06.720 the age of twelve, and we're administering about one point 0:01:06.760 --> 0:01:10.600 eight million doses a day, So we have made tremendous progress, 0:01:10.880 --> 0:01:14.080 unfortunately not enough as we should have made, but we 0:01:14.120 --> 0:01:15.920 are on that We're on that path, and so I 0:01:15.959 --> 0:01:19.880 was optimistic. Obviously, the comments out of the Maderna CEO. 0:01:20.640 --> 0:01:24.720 Uh in the ft this morning are alarming, but again, um, 0:01:24.760 --> 0:01:27.800 there is nothing new data wise. It's going to take 0:01:27.840 --> 0:01:29.720 a couple of weeks, I think for them to have 0:01:29.760 --> 0:01:33.080 a good handle on just how good the existing vaccines 0:01:33.120 --> 0:01:36.880 are and how long it will take to develop one 0:01:36.920 --> 0:01:40.760 that's more focused on the omicron variant. Howard Warden, I 0:01:41.160 --> 0:01:43.160 don't think it's I don't think there's enough data to 0:01:43.200 --> 0:01:45.360 support this being a game changer a yet. Howard. You 0:01:45.440 --> 0:01:47.760 know what it means is we have to stay invested 0:01:47.800 --> 0:01:50.320 as well. Do we shift investment and do we shift 0:01:50.360 --> 0:01:53.880 our new investment the marginal dollar we're gonna place here 0:01:53.920 --> 0:01:59.280 with this uncertainty? Does that change? Tom? I don't think so. 0:01:59.360 --> 0:02:03.360 And and uh, of course, you know I started to investor. 0:02:03.440 --> 0:02:05.600 I started working on Wall Street in the nineteen seventies, 0:02:05.600 --> 0:02:09.000 and so I've seen this economy and the stock market, 0:02:09.040 --> 0:02:12.960 whether all kinds of tournaments over the years, and essentially 0:02:13.000 --> 0:02:17.079 every material downturn in the market was a good buying opportunity, 0:02:17.440 --> 0:02:19.720 and I suspect this will be just the same, a 0:02:19.760 --> 0:02:23.680 good buying opportunity for those investors that have the willingness 0:02:23.680 --> 0:02:28.040 and patients to invest for a period of years, and so, uh, 0:02:28.280 --> 0:02:31.080 you know, the focusing on what's going to happen this 0:02:31.160 --> 0:02:34.320 week or next week, it does consume us more than 0:02:34.360 --> 0:02:37.760 it should all too often, and that's hard. It's hard 0:02:37.760 --> 0:02:40.320 to avoid that. But we really do try to focus 0:02:40.440 --> 0:02:44.560 on the long term and really a lot of good 0:02:44.600 --> 0:02:47.919 news that this this economy is very viber and it's 0:02:47.919 --> 0:02:50.760 a technology driven global economy, and there's just so much 0:02:50.840 --> 0:02:54.320 good about that. This is not the nineteen seventies where 0:02:54.560 --> 0:03:00.800 we had you know, percent inflation, uh stagulation, uh sixteen 0:03:00.840 --> 0:03:05.880 percent five year treasuries, thirty year treasuries inflation went from 0:03:05.919 --> 0:03:09.160 five percent to fiftcent a couple of years. That's not 0:03:09.680 --> 0:03:15.280 this economy, and so we've been spoiled and uh, you know, 0:03:15.720 --> 0:03:19.040 so circumstances will change, but this is still an extremely 0:03:19.200 --> 0:03:22.320 vibrat positive economy growing this year and going for the 0:03:22.360 --> 0:03:24.959 next couple of years as far as we can see, well, 0:03:24.960 --> 0:03:27.160 the economy may be vibrant, but you're not seeing that 0:03:27.200 --> 0:03:29.400 reflected in rates. The tenure yield of south of one 0:03:29.560 --> 0:03:32.320 forty three this morning. Do yields have to stay in 0:03:32.360 --> 0:03:35.240 this lower range in order for equities to continue doing 0:03:35.240 --> 0:03:36.920 well in it for a continue to be dips that 0:03:36.960 --> 0:03:42.440 you want to buy. Well, that's a good question, because 0:03:42.480 --> 0:03:45.480 we would anticipate some upward pressure on rates, I think, 0:03:45.600 --> 0:03:49.800 as everyone has been anticipating, given the fact that the 0:03:49.800 --> 0:03:53.720 economy is rebounding strongly from two percent growth last quarter 0:03:53.840 --> 0:03:59.240 to five six seven percent growth this quarter onto a 0:03:59.560 --> 0:04:03.440 probably something with a four percent growth handle next year. Uh. 0:04:03.440 --> 0:04:08.040 And with the Fed beginning to remove the monetary stimulus 0:04:08.080 --> 0:04:10.840 that's been so important stocks and to rate lower rates. 0:04:11.240 --> 0:04:14.240 So yeah, rates should drift higher. Um. If rates go 0:04:14.320 --> 0:04:16.440 back to where they were pre COVID, we're back to 0:04:16.520 --> 0:04:20.400 one or two on a ten year, so up fifties 0:04:20.440 --> 0:04:23.159 sixty basis points. And I think that would be my 0:04:23.240 --> 0:04:28.440 base case scenario over the next three to six months. UM. 0:04:28.480 --> 0:04:31.400 And that's okay, and that that might create some indigestion 0:04:31.480 --> 0:04:35.200 four stocks, but very weather Well, we can certainly deal 0:04:35.240 --> 0:04:38.159 with that. If we're completely wrong on the transitory nation 0:04:38.800 --> 0:04:43.320 nature of this inflation and it becomes more persistent, uh, 0:04:43.320 --> 0:04:46.040 and rates spiked materially higher, you know, three or four 0:04:46.120 --> 0:04:51.039 percent kinds of handles on a note, then uh, yeah, 0:04:51.080 --> 0:04:53.080 that's gonna be a problem for multiple for stocks to 0:04:53.160 --> 0:05:00.200 tak what's the grint for this tree this on with 0:05:00.279 --> 0:05:03.479 something like swell for those of you on radio. I 0:05:03.480 --> 0:05:06.160 mean Farrell took the Howard Ward playbook and it's got 0:05:06.200 --> 0:05:08.800 the cute white lights and the things like what seven 0:05:08.800 --> 0:05:11.880 ft tall? How big is that thing? Howard? Right? You 0:05:11.880 --> 0:05:13.479 know what? I think it looks bigger than it is. 0:05:13.520 --> 0:05:22.000 It's nine Really, if you made in the USA our 0:05:22.120 --> 0:05:25.480 next year. I mean, Mario's got the ugly colored lights going. 0:05:25.560 --> 0:05:27.960 You gotta go with the ugly colored lights like me. 0:05:29.200 --> 0:05:31.960 But it's good to catch that's got a lovely tree. 0:05:32.720 --> 0:05:42.520 Bays Howard Ward of Confetti Funds, Thank you. We got 0:05:42.520 --> 0:05:45.600 the advantage. Now we go to Houston, Texas. Victoria Fernandez 0:05:45.640 --> 0:05:47.920 has the advantage. She gets to work with Robert dolf, 0:05:47.960 --> 0:05:51.279 which is always a wonderful thing. Chief market strategist across 0:05:51.320 --> 0:05:55.000 Mark Global Investments. Victoria, if we get a JP Morgan 0:05:55.200 --> 0:05:58.520 eighty or a hundred or a hundred and ten whatever 0:05:58.760 --> 0:06:02.680 dollars of barrel, you're hardwired to this in Texas. What 0:06:02.760 --> 0:06:05.680 does it mean for America if we get a sustained 0:06:05.880 --> 0:06:10.720 higher oil price? Well, I think you have two fold here, Tom. 0:06:10.760 --> 0:06:13.799 I mean, obviously for the energy companies, they've been looking 0:06:13.800 --> 0:06:16.560 for these prices to go higher. They need that revenue 0:06:16.600 --> 0:06:19.080 to go ahead and put that capex in that you 0:06:19.120 --> 0:06:21.480 guys were just talking about. But we're talking so much 0:06:21.520 --> 0:06:23.880 about inflation and the effects that it's having on the 0:06:23.920 --> 0:06:26.919 consumer and what that's going to mean. Obviously, that is 0:06:26.920 --> 0:06:29.920 where a consumer feels it first and foremost is when 0:06:29.960 --> 0:06:32.000 it comes to oil. I think we have a lot 0:06:32.080 --> 0:06:34.440 of concerns here as to what OPEC plus is going 0:06:34.480 --> 0:06:37.039 to do. We're going to hear from them later this week, 0:06:37.240 --> 0:06:40.400 so we'll see what plays into that along with releasing 0:06:40.480 --> 0:06:42.800 from the reserves. So I think there's a lot of 0:06:42.800 --> 0:06:44.960 balls in the air when it comes to energy right now. 0:06:45.000 --> 0:06:46.919 And just like we're talking about the variant, we have 0:06:46.960 --> 0:06:49.200 to wait and see. Same thing is going to happen 0:06:49.200 --> 0:06:53.400 with energy. Your clientele is a great cross section of 0:06:53.480 --> 0:06:56.520 people out there working at it every day. They've made 0:06:56.560 --> 0:06:58.960 up pot of money whatever, and they go see cross mark, 0:06:59.080 --> 0:07:02.279 I get that. How scared of they of Omicron? How 0:07:02.320 --> 0:07:07.039 scared of they of two thousand twenty two. You know, 0:07:07.080 --> 0:07:09.640 it's interesting. I think this morning, and obviously I haven't 0:07:09.680 --> 0:07:11.600 talked to clients yet this morning, but I think we 0:07:11.680 --> 0:07:13.960 might hear a little bit of a different tone. You 0:07:14.000 --> 0:07:17.520 hear Powell coming out and using that word uncertainty. We 0:07:17.640 --> 0:07:20.240 know the markets don't like that word, so that's gonna 0:07:20.240 --> 0:07:23.240 add some volatility. You have the Maderna CEO coming out 0:07:23.440 --> 0:07:25.559 and saying that things are not going to be good. 0:07:25.880 --> 0:07:28.640 That's going to feed into the psyche of the consumer. 0:07:28.960 --> 0:07:31.440 We've talked many times about how we think the consumer 0:07:31.520 --> 0:07:34.680 is leading this economy right now, and that strength of 0:07:34.720 --> 0:07:37.400 the consumer we need to rely on. So I think 0:07:37.400 --> 0:07:39.760 there's gonna be maybe a little bit more concern from 0:07:39.760 --> 0:07:43.000 an investor perspective. But I think that's where my job 0:07:43.040 --> 0:07:44.880 comes into play, where I need to tell people take 0:07:44.920 --> 0:07:47.160 a step back. As you guys have said all morning, 0:07:47.240 --> 0:07:50.080 we don't have the data yet. Let's not change our 0:07:50.160 --> 0:07:53.360 outlook and our strategy until we know more. Victor, I 0:07:53.360 --> 0:07:55.080 just want to pick up on something the chairman said 0:07:55.360 --> 0:07:58.000 in that pre prepared statement out of his testimony later 0:07:58.040 --> 0:08:00.720 and you picked up on that word uncertainty. The recent 0:08:00.880 --> 0:08:03.160 rise and here's the quote in COVID nineteen cases and 0:08:03.200 --> 0:08:05.760 the emergence of the omicron varium post downside risk to 0:08:05.800 --> 0:08:08.880 employment and economic activity. That's well understood. Then he said 0:08:08.880 --> 0:08:12.480 this and increased uncertainty for inflation. What do you think 0:08:12.520 --> 0:08:15.800 that actually means? Increased uncertainty for inflation? Does that mean 0:08:15.880 --> 0:08:18.200 upside risk to inflation? Does it mean downside risk too? 0:08:18.240 --> 0:08:21.440 What does it mean? I think it's actually an upside 0:08:21.520 --> 0:08:24.360 risk at first, because it's adding to that whole and 0:08:24.400 --> 0:08:25.920 I know we hate to use the word, but it's 0:08:25.960 --> 0:08:30.360 adding to that transitory component. If supply chains do not improve. 0:08:30.400 --> 0:08:31.920 You know, we talked a couple of weeks ago and 0:08:31.920 --> 0:08:33.960 we were saying we think we might be at peak 0:08:34.040 --> 0:08:37.199 supply chain issues. We started to see shipping costs come down, 0:08:37.480 --> 0:08:39.760 We started to see a little bit of um pressure 0:08:39.760 --> 0:08:42.880 being relieved at the ports. If the variant now causes 0:08:42.880 --> 0:08:45.800 people not to go to work, it causes restrictions and shutdowns, 0:08:46.000 --> 0:08:48.040 all of that's going to ramp up again. And that's 0:08:48.040 --> 0:08:51.600 going to lead back into how much of this is transitory? 0:08:51.640 --> 0:08:53.640 What are we looking at for inflation? So I think 0:08:53.679 --> 0:08:57.760 it's an upside concern um in the short term. Longer term, 0:08:57.800 --> 0:09:00.760 I think we're still looking at inflation coming down next 0:09:00.840 --> 0:09:03.800 year to a round three. So how do you position 0:09:03.880 --> 0:09:07.920 then for the medium and longer term Victoria? Yeah? So, Kaylee, 0:09:08.000 --> 0:09:10.960 what we told our clients before last week, and what 0:09:10.960 --> 0:09:12.920 we're going to continue to tell them for now is 0:09:12.920 --> 0:09:15.959 that we need to have that balanced portfolio. We like 0:09:16.160 --> 0:09:18.600 those growth, those tech names that are in there, and 0:09:18.640 --> 0:09:20.320 we don't want to get rid of them, but we 0:09:20.400 --> 0:09:22.760 could trim those and build a little bit more on 0:09:22.800 --> 0:09:26.360 the cyclical component of our portfolio. Some of those consumer 0:09:26.480 --> 0:09:29.880 facing names that here in the fourth quarter would traditionally 0:09:29.920 --> 0:09:31.760 do well, and we think they will once we get 0:09:31.800 --> 0:09:35.160 past the initial reaction of this variant. So names we've 0:09:35.160 --> 0:09:39.040 added like a CBS um, a Walgreens Boots, We've added 0:09:39.160 --> 0:09:42.200 Lulu Women, even a name like pro Logists, which is 0:09:42.200 --> 0:09:45.480 a real um in regards to logistics for shipping. So 0:09:45.559 --> 0:09:47.320 I think you can start looking at some more of 0:09:47.320 --> 0:09:51.000 those cyclical names to balance out your portfolio, especially when 0:09:51.040 --> 0:09:54.600 you see the credit market still holding pretty strong. That's 0:09:54.600 --> 0:09:57.360 a bullish signal for us. Victoria great to catch up 0:09:57.440 --> 0:09:59.319 as always is going to see a Victoria Fernandez, the 0:09:59.640 --> 0:10:07.439 of col smile on this small kid. Yesterday. It was 0:10:07.480 --> 0:10:10.480 a magical day for us within the stress of Amicron 0:10:10.559 --> 0:10:12.880 to speak to Peter Hotez and the good people at 0:10:12.960 --> 0:10:15.680 Johns Hopkins as well, and what it's about is the 0:10:15.760 --> 0:10:20.040 dispersion of our intellectual capital with hotels going from Rockefeller 0:10:20.200 --> 0:10:23.920 University down to Baylor College over the years, or Laurence 0:10:24.000 --> 0:10:27.440 sour of Johns Hopkins going up to Nebraska to the 0:10:27.520 --> 0:10:31.200 first rate program at the University of Nebraska Medical Center. 0:10:31.240 --> 0:10:36.840 And this is really serious adult stuff about special pathogens 0:10:36.840 --> 0:10:40.440 like think ebola as well. Lauren, you are looking at 0:10:40.440 --> 0:10:45.839 an unvaccinated population. My working number is thirteen times greater death. 0:10:46.440 --> 0:10:50.360 Is A Macron a special pathogen that will get this 0:10:50.480 --> 0:10:55.280 nation vaccinated. When we think about special pathogens, we think 0:10:55.280 --> 0:10:57.439 about the tools in our tool kit that allow us 0:10:57.480 --> 0:11:00.560 to treat, to manage, to to save live of the 0:11:00.600 --> 0:11:03.360 patients who get the special pathogens. And I think right 0:11:03.400 --> 0:11:05.280 now we're still waiting to see what's going to happen 0:11:05.280 --> 0:11:08.400 with the vaccines around O. Macron. We know some of 0:11:08.400 --> 0:11:11.199 our tools work, our tests still work, we know masks 0:11:11.240 --> 0:11:13.800 still work, a lot of our treatments will still work 0:11:13.800 --> 0:11:16.760 on O. Macron, and we may need boosters to improve 0:11:16.800 --> 0:11:20.360 our ability to protect people against this new variant. But 0:11:20.440 --> 0:11:22.720 I think right now we can say that getting your 0:11:22.800 --> 0:11:27.000 vaccine is still critically important. An unfair question, but do 0:11:27.080 --> 0:11:30.559 you within all your resources, including back at Johns Hopkins. 0:11:30.840 --> 0:11:33.960 Do you have a timeline of when we'll get these answers? 0:11:35.400 --> 0:11:38.320 I would guess we'll see updates on the vaccine in 0:11:38.360 --> 0:11:41.360 the next couple of weeks. Science updates understanding how the 0:11:41.440 --> 0:11:46.199 vaccine will affect UM, the how how the variant will 0:11:46.200 --> 0:11:49.360 affect the vaccine efficacy UM, and then I would say 0:11:49.400 --> 0:11:52.240 we could see new approvals for a vaccine if it 0:11:52.280 --> 0:11:54.360 has to be updated in the next few months. So 0:11:54.400 --> 0:11:56.480 I would say somewhere between two and four months we'll 0:11:56.520 --> 0:11:59.720 see updates to the vaccine. Science is working around the clock, 0:11:59.720 --> 0:12:03.400 and it's really incredible how fast these changes are happening. 0:12:03.440 --> 0:12:07.559 To manage UM the changes to the virus that we're 0:12:07.600 --> 0:12:10.640 seeing well, and Lauren, we've seen the virus change before. 0:12:10.679 --> 0:12:12.920 We have been here in a similar moment before. We 0:12:13.360 --> 0:12:16.080 maybe are still in it with delta in many places. 0:12:16.360 --> 0:12:20.840 What stops the cycle of this happening again and again? UM, 0:12:20.880 --> 0:12:25.439 Just like Dr Hota said yesterday, getting that vaccine rate high, high, 0:12:25.520 --> 0:12:29.120 high UM, as many people vaccinated as possible is critical 0:12:29.160 --> 0:12:33.280 to stopping and slowing down these UM these new variants. 0:12:33.320 --> 0:12:38.319 So the variants moved through on vaccinated populations easier and UM, 0:12:38.400 --> 0:12:41.439 when we start to see them appear in in populations 0:12:41.440 --> 0:12:43.720 with lower vaccines they can get they can also move 0:12:43.760 --> 0:12:47.080 out of those populations quicker. So getting as many people 0:12:47.160 --> 0:12:50.160 vaccinated as possible as huge. I agree with him. I'd 0:12:50.160 --> 0:12:53.200 love to see here in the US. Not only does 0:12:53.240 --> 0:12:56.079 it protect against the variants, but it also protects against 0:12:56.120 --> 0:12:59.920 the already circulating strains UM and reduces the likelihood of 0:13:00.000 --> 0:13:03.720 severe disease and death. UM. We are seeing unnecessary death. 0:13:03.760 --> 0:13:07.040 We're seeing unnecessary strain on our hospitals and healthcare systems, 0:13:07.360 --> 0:13:10.280 and on our healthcare workers in particular well or And 0:13:10.320 --> 0:13:12.640 it's not just about vaccinations as well, it's also about 0:13:12.720 --> 0:13:16.280 the treatment of people who do end up testing positive 0:13:16.280 --> 0:13:20.240 and getting sick. Do we know anything about the effectiveness 0:13:20.240 --> 0:13:23.439 of treatments. We know that vaccine efficacy can change depending 0:13:23.440 --> 0:13:27.720 on the variant does treatment as well. As of right now, 0:13:28.720 --> 0:13:31.560 it's looking like our treatments will still be useful and 0:13:31.679 --> 0:13:35.440 we still have incredible supportive care here in the United 0:13:35.440 --> 0:13:38.120 States to to treat and take care of patients who 0:13:38.200 --> 0:13:41.120 make their way into the hospital because of covid um 0:13:41.400 --> 0:13:45.000 and the newly developed treatments look like they will continue 0:13:45.000 --> 0:13:47.240 to work against mccran, which is great to hear. It's 0:13:47.280 --> 0:13:50.080 great news. But we are still seeing the development of 0:13:50.200 --> 0:13:55.120 new therapeutics coming down the pike, and UM, those will continue, 0:13:55.320 --> 0:13:58.480 those developments will continue to happen even as new variants 0:13:58.520 --> 0:14:01.280 pop up. For now, those tools still work for us 0:14:01.400 --> 0:14:04.559 and the and the hope is that will keep people 0:14:04.600 --> 0:14:09.600 out of the hospital. UM as the vaccines evolve and develop. Lauren, 0:14:09.880 --> 0:14:14.559 your observation migrating from the East coast out to Nebraska 0:14:14.679 --> 0:14:18.760 with a one point nine percent unemployment rate, what is 0:14:18.800 --> 0:14:22.840 your observation on Olmaha, Lincoln and the rest of it 0:14:22.880 --> 0:14:27.160 out to Cozad and beyond. I love Omaha. I mean, 0:14:27.200 --> 0:14:30.640 I'm so happy whenever I'm there. It's a fantastic city. 0:14:30.720 --> 0:14:33.520 And I think that one of the things that we're 0:14:33.560 --> 0:14:37.960 seeing is that the hospital and healthcare utilization of people 0:14:37.960 --> 0:14:40.280 getting COVID is still really high. So we would like 0:14:40.360 --> 0:14:43.600 to see higher vaccination rates in Nebraska as well. UM. 0:14:43.840 --> 0:14:46.960 And and it is a different it's a different environment 0:14:46.960 --> 0:14:51.040 obviously in Baltimore. UM. I still live in Baltimore, so UM, 0:14:51.080 --> 0:14:52.920 you know, I get, I get a flavor of both. 0:14:53.000 --> 0:14:56.000 But we'd love to see increased vaccination rates in in 0:14:56.040 --> 0:14:59.040 the more rural areas in Nebraska, UM in the city 0:14:59.240 --> 0:15:01.680 and UM through the support of U and MC, there's 0:15:01.800 --> 0:15:05.880 big pushes to get more people vaccinated every single day. Lauren, 0:15:05.920 --> 0:15:07.480 it's been too long. It's always going to catch up 0:15:07.480 --> 0:15:09.680 with you. Lauris sad there at the University of Nebraska 0:15:09.720 --> 0:15:18.520 Medical Center. Thank you very much. This is a joy 0:15:18.560 --> 0:15:21.600 in studio where it's Ian Shepherdson, chief economist and Pantheon 0:15:21.920 --> 0:15:25.000 macro Economics, And what's so important about his focus on 0:15:25.320 --> 0:15:30.120 the United States is also the Pantheon macro Economics expertise 0:15:30.560 --> 0:15:34.240 on China. Craig Bottom doing that this morning in China. 0:15:34.320 --> 0:15:37.680 His morning note talks about the infrastructure push of China, 0:15:37.960 --> 0:15:41.280 and you clearly see a better China than the gloom 0:15:41.320 --> 0:15:44.320 that's out there. Well, yeah, some of the gloom was 0:15:44.400 --> 0:15:47.360 quite extreme. China's got some really big problems, but it's 0:15:47.440 --> 0:15:49.360 it's not, you know, the end of the world. The 0:15:50.080 --> 0:15:52.160 loss of the real estate driven model for growth that 0:15:52.200 --> 0:15:55.920 they've had for so long requires a shift into other areas, 0:15:55.920 --> 0:15:57.600 and infrastructure is clearly going to be one of them. 0:15:57.640 --> 0:15:59.760 So it's very early days, and obviously the real estate 0:15:59.800 --> 0:16:01.800 problems continue to roll on. This is going to be 0:16:01.880 --> 0:16:03.880 with us for a very long time. But China does 0:16:03.960 --> 0:16:06.320 have to find a different growth model to carry it 0:16:06.320 --> 0:16:08.760 through now that it's lost that impetus from from real estate. 0:16:08.920 --> 0:16:11.600 With your wonderful perspective, I think of only Leland Miller 0:16:11.640 --> 0:16:14.400 of China Beije book who really has that dynamic going 0:16:14.400 --> 0:16:17.680 back and forth across the Pacific. How does the Chinese 0:16:17.760 --> 0:16:23.560 dynamics domestically affect your watch of the American economy. It's 0:16:23.560 --> 0:16:25.640 a problem for us in the US because of the 0:16:25.680 --> 0:16:28.480 disruptions that are caused by china zero COVID policies, so 0:16:28.640 --> 0:16:32.000 disrupt the manufacturing, disrupt their logistic chains, disrupt their ports, 0:16:32.280 --> 0:16:35.560 and of course with omicron, potentially they'll clamp down even more. 0:16:35.640 --> 0:16:37.680 China doesn't show any signs of stepping away from that 0:16:37.760 --> 0:16:42.320 zero COVID approach, and that means endless supply disruptions and 0:16:42.400 --> 0:16:45.760 supply chain problems for US manufacturers and businesses seeking to 0:16:45.760 --> 0:16:48.520 import components or finish goods from China. So I don't 0:16:48.520 --> 0:16:51.320 see this going away. It's a primarily a problem of 0:16:51.360 --> 0:16:54.400 the manufacturing sector. It's not the whole U S economy, 0:16:54.440 --> 0:16:57.080 which is enthralled to the problems in China, but it's 0:16:57.080 --> 0:17:00.040 certainly not helpful at the margin, and the omicron I 0:17:00.080 --> 0:17:02.160 would makes things even more difficult to see ahead. And 0:17:02.200 --> 0:17:04.240 that word endless is very different to the word that's 0:17:04.240 --> 0:17:06.400 been used all year transit three. So I just wonder 0:17:06.440 --> 0:17:09.520 a simple question, does the chairman have the time to wait, 0:17:09.760 --> 0:17:12.680 to sit this out and wait? I think it does 0:17:13.480 --> 0:17:15.280 if he gets ahead of what's coming over the next 0:17:15.280 --> 0:17:17.439 few months and preps and markets for what's likely to 0:17:17.440 --> 0:17:21.040 be some really horrible inflation figures for November, December, January, 0:17:21.320 --> 0:17:23.840 then things start to get better. But at the moment, 0:17:24.000 --> 0:17:26.200 the FED kind of seems reactive to these numbers, rather 0:17:26.240 --> 0:17:28.199 than getting out front and saying to markets, hey, it's 0:17:28.240 --> 0:17:30.040 it's going to be bad, it's going to be worse. 0:17:30.080 --> 0:17:32.400 We might even see core inflation, I don't know, six 0:17:32.440 --> 0:17:35.600 and a half percent potentially in February. Then it drops 0:17:35.680 --> 0:17:37.920 very sharply. But it's a question of whether the FED 0:17:38.040 --> 0:17:39.920 is prepared to dig in its heels and say we're 0:17:39.920 --> 0:17:41.960 going to wait for the turn because we know it's coming, 0:17:42.840 --> 0:17:44.600 or whether they feel that they have to respond, maybe 0:17:44.640 --> 0:17:46.920 to take out something that they would call an insurance 0:17:46.920 --> 0:17:50.840 policy against transitory becoming more embedded. That certainly seems to 0:17:50.840 --> 0:17:52.359 be the way that they've gone with the taper, And 0:17:52.400 --> 0:17:54.040 if it weren't for my chron, I'm sure they would 0:17:54.040 --> 0:17:56.560 be doubling the pace at the taper at the December meeting. 0:17:56.560 --> 0:17:58.440 Now now that someone certainly over that, do you think 0:17:58.440 --> 0:18:00.520 they need to do that and to retain that ftionality 0:18:00.760 --> 0:18:02.280 on rate? Do you think they need to go quicker? 0:18:02.880 --> 0:18:04.480 I don't think they. I don't think they have to 0:18:04.560 --> 0:18:07.240 because I'm really quite bullish about inflation in the medium term. 0:18:07.359 --> 0:18:08.960 I very much by the idea that by the end 0:18:09.000 --> 0:18:10.760 of next year we're going to be looking back and saying, 0:18:10.840 --> 0:18:13.560 you know, really, what was all the fuss about, especially 0:18:13.560 --> 0:18:15.000 in the good sector, where I think we'll see a 0:18:15.040 --> 0:18:19.879 really dramatic turnaround. But the FED can't necessarily assume that 0:18:19.880 --> 0:18:22.520 that's guaranteed to happen. And that's where this question of 0:18:22.560 --> 0:18:25.359 taking out an insurance policy, giving yourself some more room 0:18:25.400 --> 0:18:28.200 for maneuver just in case you're wrong, becomes a more 0:18:28.240 --> 0:18:30.959 pressing question. And if it weren't Phar Macron, yeah, they 0:18:31.240 --> 0:18:33.040 taper sooner, and that would open the door to a 0:18:33.160 --> 0:18:35.280 rate I at some point in the second quarter, maybe 0:18:35.280 --> 0:18:37.479 as soon as March that that will that would surprise me. 0:18:37.880 --> 0:18:40.560 I do think that there's still a substantial body of 0:18:40.560 --> 0:18:42.440 opinion within the FED that thinks that they need to 0:18:42.480 --> 0:18:44.600 give it some more time. That they're pretty confident that 0:18:44.640 --> 0:18:46.840 the lobor market is going to fix itself with with 0:18:46.960 --> 0:18:49.359 rising participation over the next few months and ease some 0:18:49.400 --> 0:18:51.600 of that wage pressure, But of course it might not. 0:18:52.200 --> 0:18:54.120 And if it doesn't, then you're looking back saying, well, 0:18:54.160 --> 0:18:55.920 you know, we should have been a bit more aggressive. 0:18:55.920 --> 0:18:57.880 So there's a real balancing act to be made there. 0:18:58.480 --> 0:19:00.600 And you know, right now markets have a pretty firm 0:19:00.640 --> 0:19:01.919 view of the way the FED needs to go, but 0:19:02.040 --> 0:19:04.480 I'm not sure it's quite so clear cut yet. Ian 0:19:04.520 --> 0:19:07.160 does maximum employment that part of the doormandate not need 0:19:07.200 --> 0:19:10.600 to be redefined for a pandemic era economy? Well, this 0:19:10.680 --> 0:19:13.120 is a tricky one because what you know, they've never 0:19:13.160 --> 0:19:16.000 defined maximum employment in very explicit terms. So do they 0:19:16.040 --> 0:19:17.960 mean that the unemployment rate getting back to three and 0:19:18.000 --> 0:19:20.320 a half like it was before COVID. Did they mean 0:19:20.359 --> 0:19:23.439 the employment population ratio returned to where it was before COVID? 0:19:23.600 --> 0:19:25.720 Did they mean the participation rate going back to where 0:19:25.720 --> 0:19:28.159 it was before COVID. They've they've never really said, you know, 0:19:28.480 --> 0:19:30.800 but I think that it's important to appreciate that chap 0:19:30.880 --> 0:19:34.440 Power has been very keen for for a long time 0:19:34.480 --> 0:19:37.800 now about reminding people how good the labor market was 0:19:37.840 --> 0:19:39.880 before COVID and how much he wants to get back 0:19:39.880 --> 0:19:42.760 to something that looks a lot like that before he 0:19:42.760 --> 0:19:45.159 would consider the full employment mandate to have been reached, 0:19:45.359 --> 0:19:46.959 whereas some of his colleagues I think are a bit 0:19:47.000 --> 0:19:50.280 more gung ho, probably because they're more nervous about the 0:19:50.320 --> 0:19:53.520 inflation outlook than the Mr Powell is. And there's a 0:19:53.600 --> 0:19:55.560 very split opinion on the FED. And of course we've 0:19:55.560 --> 0:19:57.119 got empty seats that need to be filled over the 0:19:57.200 --> 0:19:58.879 next few months, so we may well see the balance 0:19:58.920 --> 0:20:01.240 of power shift thing I think in favor of the 0:20:01.280 --> 0:20:03.280 DOES in Washington and maybe away from some of the 0:20:03.320 --> 0:20:05.840 more hawkish regional people. Well, if you game this out 0:20:05.840 --> 0:20:08.320 and take what people have said the potential implications of 0:20:08.320 --> 0:20:10.639 the macron varying, Again, there's things that we don't know, 0:20:10.680 --> 0:20:13.639 but if you have an exacerbating supply side challenges feeding 0:20:13.640 --> 0:20:15.840 into those inflation area dynamics at the same time, it 0:20:15.880 --> 0:20:19.400 may be discourages people from re entering the labor market. 0:20:19.480 --> 0:20:21.360 Will the FED end up in a situation where it's 0:20:21.359 --> 0:20:24.240 forced to react to inflation even if the labor market 0:20:24.320 --> 0:20:26.439 is not where it wants to be. Yeah, this is 0:20:26.600 --> 0:20:28.639 this is now a real risk that that if mccron 0:20:28.760 --> 0:20:30.920 keeps people out of the labor force, who would otherwise 0:20:30.960 --> 0:20:34.800 have come back in easing this supply demand in balance 0:20:34.840 --> 0:20:37.800 that we've got right now with very very high wage growth. 0:20:37.880 --> 0:20:40.440 If if if a macron stops out and balance being 0:20:40.640 --> 0:20:43.560 shifted in favor of more supply, then the wage numbers 0:20:43.600 --> 0:20:45.880 won't slow down in the way that the FED needs 0:20:45.920 --> 0:20:48.040 them to be, and they'll they'll be pushed into being 0:20:48.080 --> 0:20:50.399 more aggressive. But at the moment, you know, this is 0:20:50.480 --> 0:20:52.359 very premature. We don't know. We may find out over 0:20:52.359 --> 0:20:54.360 the next couple of weeks that this is a great 0:20:54.400 --> 0:20:57.120 deal of us about not very much, in which case 0:20:57.119 --> 0:20:58.879 we're back on the on the previous track. We're all 0:20:58.920 --> 0:21:01.280 speculating right now. And the message coming out of the 0:21:01.280 --> 0:21:03.439