1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferroll and Lisa Brownowitz Jaily, we bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:29,680 Speaker 1: and of course on the Bloomberg Tournament right now. This 6 00:00:29,760 --> 00:00:32,080 Speaker 1: is a great joy. He's one of the original guests 7 00:00:32,080 --> 00:00:35,440 Speaker 1: to give us support on economics, finance, investment, and all 8 00:00:35,479 --> 00:00:40,200 Speaker 1: of international relations. Kenneth Rogoff of Harvard University that joins 9 00:00:40,280 --> 00:00:42,120 Speaker 1: us here and of course with his public service to 10 00:00:42,200 --> 00:00:45,800 Speaker 1: the International Monetary Fund, a good tour of duty there 11 00:00:45,880 --> 00:00:49,479 Speaker 1: a number of years ago. Ken Rogoff, I want to 12 00:00:49,520 --> 00:00:52,440 Speaker 1: play right now for you and for our radio and 13 00:00:52,520 --> 00:00:56,880 Speaker 1: television audience the comments of Adam Posing at the Peterson 14 00:00:56,960 --> 00:01:02,120 Speaker 1: Institute on a need to lift inflation. Let's listen. One 15 00:01:02,160 --> 00:01:04,720 Speaker 1: of the problems that we didn't foresee when we put 16 00:01:04,760 --> 00:01:08,399 Speaker 1: in place inflation targets was we assumed it's in the 17 00:01:08,440 --> 00:01:11,240 Speaker 1: books that we wrote. We assumed that you would be 18 00:01:11,280 --> 00:01:15,160 Speaker 1: able to reset the target as economic knowledge and circumstances changed. 19 00:01:15,720 --> 00:01:18,720 Speaker 1: We've never seen targets get raised for inflation targets. We 20 00:01:18,760 --> 00:01:23,000 Speaker 1: should be opportunistically reflating. We should be saying, okay, inflation 21 00:01:23,080 --> 00:01:25,760 Speaker 1: is now above three percent, let's re anchor it there. 22 00:01:26,680 --> 00:01:29,639 Speaker 1: Ken rogoff Off your important book, one of my books 23 00:01:29,640 --> 00:01:32,360 Speaker 1: of the year, The Curse of Cash? Should we fear 24 00:01:32,840 --> 00:01:37,160 Speaker 1: the curse of inflation? Well, you know, it's not a 25 00:01:37,240 --> 00:01:42,119 Speaker 1: crazy idea. I think that's a second best idea by far. 26 00:01:42,280 --> 00:01:45,920 Speaker 1: The most elegant long term solution is cash is marginalized, 27 00:01:46,520 --> 00:01:49,520 Speaker 1: is to move to effective negative interest right policy. But 28 00:01:49,520 --> 00:01:52,320 Speaker 1: it's not crazy. But I mean the timing would be 29 00:01:52,360 --> 00:01:56,120 Speaker 1: a little bit awkward. Right now, this isn't a gradual 30 00:01:56,320 --> 00:02:01,240 Speaker 1: rise of inflation three They've lost control of the game here, 31 00:02:01,800 --> 00:02:04,080 Speaker 1: and I think they kind of need to demonstrate that 32 00:02:04,160 --> 00:02:08,040 Speaker 1: could if it's still high in three or three years 33 00:02:08,120 --> 00:02:10,799 Speaker 1: or four years, it might be. I mean, I think 34 00:02:10,800 --> 00:02:13,640 Speaker 1: this conversation will come up. Although I have to tell you, Tom, 35 00:02:13,680 --> 00:02:17,440 Speaker 1: if lal Brainerd had been appointed FED chair, she was 36 00:02:17,639 --> 00:02:20,760 Speaker 1: pretty sympathetic to this idea. I have a feeling to 37 00:02:20,800 --> 00:02:24,119 Speaker 1: your own Powell might listen to it, but won't be 38 00:02:24,320 --> 00:02:31,440 Speaker 1: who lost control of the game. Well, I mean, you know, 39 00:02:31,639 --> 00:02:36,959 Speaker 1: the positive spin on policies simply that uh, they were 40 00:02:37,040 --> 00:02:40,840 Speaker 1: buying insurance. Things turned out much better than we thought, 41 00:02:40,960 --> 00:02:45,840 Speaker 1: the vaccines, the recovery, and so there's inflation, and it's 42 00:02:45,880 --> 00:02:48,239 Speaker 1: sort of good news because it could have gone a 43 00:02:48,280 --> 00:02:51,359 Speaker 1: lot worse. We could have had deflation. But I think 44 00:02:51,400 --> 00:02:54,800 Speaker 1: that story is getting harder to tell, you know, really, 45 00:02:54,840 --> 00:02:56,919 Speaker 1: starting six months ago, I think he was getting kind 46 00:02:56,960 --> 00:03:00,840 Speaker 1: of clear that wasn't where we were. And the stimulus, 47 00:03:00,919 --> 00:03:04,880 Speaker 1: particularly the March stimulus that Congress and the Biden administration 48 00:03:04,919 --> 00:03:08,400 Speaker 1: put in place, was too much, too late, and the 49 00:03:08,480 --> 00:03:12,000 Speaker 1: FED really pushed back. But then again, we wouldn't be 50 00:03:12,040 --> 00:03:15,440 Speaker 1: talking about Chair Jerome Powell now, we'd be talking about 51 00:03:15,480 --> 00:03:19,320 Speaker 1: Chair Lyle Brainer. I think with that hanging over his 52 00:03:19,440 --> 00:03:23,720 Speaker 1: hattie really couldn't come Chet's stuff till your seminal graduate 53 00:03:23,840 --> 00:03:26,880 Speaker 1: work with Maurice Hobsfeld. With what Stan Fisher road in 54 00:03:28,560 --> 00:03:32,000 Speaker 1: and the system that Jerome Powell's in right now, does 55 00:03:32,040 --> 00:03:36,720 Speaker 1: he need to fear instabilities or jump conditions as central 56 00:03:36,760 --> 00:03:40,840 Speaker 1: banker of the world. Well, I think we're talking about 57 00:03:40,840 --> 00:03:45,280 Speaker 1: inflation that tends to move gradually. Now. I know it 58 00:03:45,320 --> 00:03:48,960 Speaker 1: hasn't felt very gradually in perspective, but when you look 59 00:03:49,000 --> 00:03:52,040 Speaker 1: at you know, the great hyper inflations in Latin America 60 00:03:52,120 --> 00:03:55,920 Speaker 1: in the eighties and nineties and the new Soviet republics. 61 00:03:56,280 --> 00:03:58,560 Speaker 1: I mean, it actually takes a while to take off. 62 00:03:58,640 --> 00:04:02,880 Speaker 1: It doesn't happen overnight. Um, but uh, you know you 63 00:04:02,920 --> 00:04:05,120 Speaker 1: need to react at some time. Now we're talking about 64 00:04:05,120 --> 00:04:08,960 Speaker 1: a crisis. If we're talking about another banking crisis, corporate 65 00:04:08,960 --> 00:04:13,280 Speaker 1: debt crisis, that can come much more suddenly. I think 66 00:04:13,320 --> 00:04:17,680 Speaker 1: emerging markets and development economies are just an accident waiting 67 00:04:17,680 --> 00:04:20,160 Speaker 1: to happen now. And if we're talking about the FED 68 00:04:20,240 --> 00:04:24,440 Speaker 1: being behind the curve, the International Monetary Fund is perhaps 69 00:04:24,520 --> 00:04:27,360 Speaker 1: even more so. But I you know, I think right now, 70 00:04:27,400 --> 00:04:30,360 Speaker 1: if we're talking about inflation, there is time to act. 71 00:04:30,960 --> 00:04:34,240 Speaker 1: It doesn't mean that the longer you wait it doesn't 72 00:04:34,279 --> 00:04:37,720 Speaker 1: get longer and more unpleasant to unwind it. I wanna 73 00:04:38,040 --> 00:04:40,680 Speaker 1: double down on this whole idea of an accident waiting 74 00:04:40,680 --> 00:04:43,600 Speaker 1: to happen can in the developing world? How much does 75 00:04:43,640 --> 00:04:46,400 Speaker 1: that really hinge on the idea of a FED that 76 00:04:46,480 --> 00:04:48,880 Speaker 1: most people think will be able to have controlled rate hikes, 77 00:04:48,920 --> 00:04:51,800 Speaker 1: but some people worry have gotten a little bit out 78 00:04:51,839 --> 00:04:53,560 Speaker 1: of control and are going to have to hike much 79 00:04:53,600 --> 00:04:59,080 Speaker 1: more quickly. Well, it's certainly very sensitive for the hiking 80 00:04:59,120 --> 00:05:05,520 Speaker 1: more quickly scenario. Uh, there every many many countries that 81 00:05:05,640 --> 00:05:09,200 Speaker 1: sort of have access right now suddenly wouldn't That would 82 00:05:09,200 --> 00:05:11,680 Speaker 1: really be catastrophic. And I'm not talking about a four 83 00:05:11,800 --> 00:05:14,240 Speaker 1: percent high. Just if they had to hike by a 84 00:05:14,279 --> 00:05:17,760 Speaker 1: full percent next year, I think that would trigger problems. 85 00:05:17,800 --> 00:05:19,960 Speaker 1: But they're already a lot of problems. And what we 86 00:05:20,000 --> 00:05:25,200 Speaker 1: call the frontier emerging markets. Uh, you know countries obviously 87 00:05:25,320 --> 00:05:29,000 Speaker 1: Argentina eleven on have defaulted, but you could look at 88 00:05:29,000 --> 00:05:33,640 Speaker 1: countries like each of Pakistan gonna really or you know, 89 00:05:33,720 --> 00:05:36,360 Speaker 1: have very high debt, not a lot of market access, 90 00:05:36,720 --> 00:05:40,800 Speaker 1: double digit inflation in some cases. Uh, you know, very 91 00:05:40,800 --> 00:05:43,840 Speaker 1: different picture there, and there's not a lot they can 92 00:05:43,880 --> 00:05:46,640 Speaker 1: do if there's a rapid FED high. And again I 93 00:05:46,680 --> 00:05:49,120 Speaker 1: think the I m F has been behind the curve 94 00:05:49,200 --> 00:05:53,719 Speaker 1: on this sort of not putting any conditionality, which made 95 00:05:53,720 --> 00:05:57,320 Speaker 1: a lot of sense early on when it was a catastrophe, 96 00:05:57,760 --> 00:06:00,440 Speaker 1: but as time has gone on, they haven't filed back. 97 00:06:00,480 --> 00:06:03,680 Speaker 1: It's very similar to the FED going back to the FED. 98 00:06:03,800 --> 00:06:06,760 Speaker 1: It can There was an implication in your comments earlier 99 00:06:06,839 --> 00:06:09,599 Speaker 1: about how FED share J. Powell had he been more 100 00:06:09,680 --> 00:06:12,400 Speaker 1: honest in his assessment six months ago about how he 101 00:06:12,400 --> 00:06:16,400 Speaker 1: saw the economic picture he would not get renominated. What 102 00:06:16,440 --> 00:06:19,080 Speaker 1: does that say in terms of how political the Federal 103 00:06:19,080 --> 00:06:22,080 Speaker 1: Reserve is right now and how much market participants can 104 00:06:22,080 --> 00:06:26,239 Speaker 1: trust the messaging that they're they're putting out there. Well, 105 00:06:26,279 --> 00:06:29,279 Speaker 1: you know, there's always pressure on the Fed up to 106 00:06:29,320 --> 00:06:32,479 Speaker 1: the reappointment of the chair, So that's not something new. 107 00:06:32,520 --> 00:06:36,200 Speaker 1: Donald Trump was, you know, pressuring Janet Yellen in that period. 108 00:06:36,640 --> 00:06:40,680 Speaker 1: I think she resisted more. The fat has become very politicized. 109 00:06:40,760 --> 00:06:43,280 Speaker 1: It's a reflection of our society. It's a reflection of 110 00:06:43,320 --> 00:06:45,200 Speaker 1: what they live in, what they have to put up with. 111 00:06:45,800 --> 00:06:47,880 Speaker 1: And I think Jerome Powell is going to do his 112 00:06:48,120 --> 00:06:51,680 Speaker 1: best to steer away from this. But but it's hard. 113 00:06:51,720 --> 00:06:54,680 Speaker 1: Biden has a lot of appointments. There's all kinds of 114 00:06:54,720 --> 00:06:58,640 Speaker 1: indirect pressures they can put on. I certainly we've seen 115 00:06:58,640 --> 00:07:02,000 Speaker 1: a period where a lot of endemics have said we 116 00:07:02,000 --> 00:07:06,240 Speaker 1: should have fiscal dominance followers, or policy shouldn't do that much, 117 00:07:06,360 --> 00:07:10,120 Speaker 1: fiscal policy should take over. That's been actually almost a 118 00:07:10,240 --> 00:07:13,480 Speaker 1: central theme and a lot of research we've seen it's nuts. 119 00:07:13,760 --> 00:07:16,280 Speaker 1: I mean, fiscal policy is very political it should look 120 00:07:16,280 --> 00:07:20,680 Speaker 1: at long term growth, distribution of income, trying to manage cycles. 121 00:07:20,680 --> 00:07:22,840 Speaker 1: Look what happened in March. I mean, it's a perfect 122 00:07:22,880 --> 00:07:27,600 Speaker 1: example of fiscal policy coming in too late, too much, 123 00:07:27,800 --> 00:07:30,880 Speaker 1: wrong timing, and who knows, we may end up tightening 124 00:07:30,960 --> 00:07:32,800 Speaker 1: now more than we need. You kind, I want to 125 00:07:32,800 --> 00:07:35,360 Speaker 1: get to something that you know better than most Tom 126 00:07:35,360 --> 00:07:37,640 Speaker 1: and I get some hate mails sometimes and hate mala 127 00:07:37,680 --> 00:07:39,240 Speaker 1: had in the last twenty four hours is why don't 128 00:07:39,240 --> 00:07:42,320 Speaker 1: you use the H word hyperinflation? Why you're scaned of it? 129 00:07:42,320 --> 00:07:44,400 Speaker 1: While you're using that? I was just thinking, professor, if 130 00:07:44,440 --> 00:07:48,360 Speaker 1: you could distinguish between problematic inflation the mid single digits, 131 00:07:48,360 --> 00:07:51,320 Speaker 1: the high single digits, and the H word, and what 132 00:07:51,440 --> 00:07:54,000 Speaker 1: happens when we cross that line and lose faith in 133 00:07:54,040 --> 00:07:58,280 Speaker 1: the underlying, underlying means of exchange. Can can you walk 134 00:07:58,360 --> 00:08:01,360 Speaker 1: us through that that dividing line, so you know, we 135 00:08:01,520 --> 00:08:05,600 Speaker 1: put having a hyper inflation that's something like two thousand 136 00:08:05,720 --> 00:08:10,080 Speaker 1: percent per year inflation, not even a hundred percent the 137 00:08:10,160 --> 00:08:12,840 Speaker 1: United States. I think, Pete, if you look at annual 138 00:08:12,840 --> 00:08:16,880 Speaker 1: inflation around thirteen percent back in the nineteen seventies the 139 00:08:17,000 --> 00:08:21,360 Speaker 1: UK and Japan went over, that is not hyper inflation. 140 00:08:21,880 --> 00:08:26,560 Speaker 1: Venezuel has had hyper inflation. Uh you know Zimbabwe and 141 00:08:26,640 --> 00:08:31,360 Speaker 1: two thou two millions of percent inflation. Hyperinflation is a 142 00:08:31,520 --> 00:08:34,520 Speaker 1: hyperbolic word. But on the other hand, let me tell you, 143 00:08:34,720 --> 00:08:37,480 Speaker 1: if we got to thirteen percent inflation for a year, 144 00:08:37,760 --> 00:08:40,360 Speaker 1: it would feel like hyper inflation in the United States 145 00:08:40,400 --> 00:08:43,840 Speaker 1: because we have very complex financial markets, they're not built 146 00:08:43,880 --> 00:08:47,800 Speaker 1: for this. You know. I think we could well see 147 00:08:48,000 --> 00:08:51,439 Speaker 1: inflation stay up at three and a half four percent 148 00:08:51,800 --> 00:08:53,880 Speaker 1: in a couple of years. I mean, I don't know 149 00:08:53,960 --> 00:08:57,320 Speaker 1: that it's the modal outcome, but it's quite possible because 150 00:08:57,360 --> 00:08:59,760 Speaker 1: I think as they try to start raising interest rights, 151 00:08:59,760 --> 00:09:04,679 Speaker 1: they're o'clock, Tom, that is high corporate debt, public that 152 00:09:05,000 --> 00:09:08,440 Speaker 1: the stock market, housing prices, you name it. Yeah, that 153 00:09:08,600 --> 00:09:11,720 Speaker 1: wasn't the case in the early nineteen eighties. I worked 154 00:09:11,720 --> 00:09:14,440 Speaker 1: at the Fellow Reserve under He was very grave, but 155 00:09:14,480 --> 00:09:17,400 Speaker 1: he wasn't going up against that professor. This is a 156 00:09:17,400 --> 00:09:19,880 Speaker 1: massive change, and some you and I've talked about it. 157 00:09:19,880 --> 00:09:21,640 Speaker 1: It might not be higher inflation. We now we near 158 00:09:21,720 --> 00:09:26,400 Speaker 1: those conditions, but somethink double triple to two we used 159 00:09:26,400 --> 00:09:28,959 Speaker 1: to Tom, that's a massive change. I have this conversation 160 00:09:29,000 --> 00:09:30,720 Speaker 1: with a bit late on the open with Premier Bub 161 00:09:30,840 --> 00:09:33,319 Speaker 1: Michael and Jean Bavan. Great lineup, gun into the open. 162 00:09:33,600 --> 00:09:35,199 Speaker 1: I really want to know, John, I really want to 163 00:09:35,240 --> 00:09:38,520 Speaker 1: know where Priam Misers is. If, in the words of 164 00:09:38,600 --> 00:09:40,760 Speaker 1: the professors, in a couple of years time, we're still 165 00:09:40,840 --> 00:09:42,840 Speaker 1: up there, how does that change things for this market? 166 00:09:43,000 --> 00:09:45,560 Speaker 1: Very much? We continue with Kenneth Rogoff and welcome all 167 00:09:45,559 --> 00:09:47,760 Speaker 1: of you on radio and television. Will do equities here 168 00:09:47,760 --> 00:09:51,120 Speaker 1: in a moment on this FAT day, Dr Rogoff, As 169 00:09:51,160 --> 00:09:53,600 Speaker 1: you mentioned Paul Boker, I want to go back to 170 00:09:53,640 --> 00:09:57,319 Speaker 1: the courage of nineteen seventy nine. The Doom and Gloom 171 00:09:57,440 --> 00:10:02,199 Speaker 1: crew wants vulcar courage right now. I don't hear that 172 00:10:02,360 --> 00:10:05,880 Speaker 1: from you that that is needed right now. What is 173 00:10:05,920 --> 00:10:08,679 Speaker 1: the prescription not only for two thousand twenty two for 174 00:10:08,760 --> 00:10:12,439 Speaker 1: the FED, but what kind of courage is necessary here 175 00:10:12,840 --> 00:10:19,000 Speaker 1: for our monetary economists are leaders on this theory? Well, 176 00:10:19,040 --> 00:10:23,480 Speaker 1: you know, we're in this pandemic where there's tremendous uncertainty. 177 00:10:23,520 --> 00:10:26,760 Speaker 1: I think in nineteen seventy nine it was really pretty 178 00:10:26,800 --> 00:10:30,480 Speaker 1: clear what would happen. There was an amazingly broad consensus 179 00:10:30,920 --> 00:10:34,240 Speaker 1: that the FAT needed to do something and the politicians 180 00:10:34,280 --> 00:10:37,440 Speaker 1: but pushed back against it. And I'm not Churchimmy Carter 181 00:10:37,559 --> 00:10:39,960 Speaker 1: knew what he was getting into what he appointed Paul Boker, 182 00:10:40,080 --> 00:10:44,400 Speaker 1: but Paul worker to the job in Greenspan, followed up, etcetera. Today, 183 00:10:44,520 --> 00:10:47,120 Speaker 1: I mean, there's obviously a lot of lingering on certainty. 184 00:10:47,160 --> 00:10:50,560 Speaker 1: I mentioned at the beginning that everybody was offs terrible, 185 00:10:50,760 --> 00:10:55,359 Speaker 1: they're they're idiots. Well, I mean, that's it's Monday morning quarterbacking. 186 00:10:55,920 --> 00:10:58,720 Speaker 1: I didn't know when the when the pandemic broke out 187 00:10:58,760 --> 00:11:01,720 Speaker 1: that we'd have the vaccine as quickly. We didn't know 188 00:11:01,840 --> 00:11:05,120 Speaker 1: how much we'd adapt. I mean, there were predictions about it, 189 00:11:05,120 --> 00:11:08,240 Speaker 1: but the modal prediction was for much worse. I think 190 00:11:08,280 --> 00:11:11,439 Speaker 1: the mistakes have come, you know, more recently, where he's 191 00:11:11,480 --> 00:11:13,840 Speaker 1: going to have to be courageous. He's going to raise 192 00:11:14,160 --> 00:11:17,480 Speaker 1: right next year. It seem pretty likely to me. Where 193 00:11:17,480 --> 00:11:20,360 Speaker 1: he has to get courageous is you know things are 194 00:11:20,360 --> 00:11:22,839 Speaker 1: going to start seeming a little shaky, there's gonna be 195 00:11:22,920 --> 00:11:26,920 Speaker 1: pushed back, and we had inflation still be up, and 196 00:11:27,440 --> 00:11:30,320 Speaker 1: you know what if he needs to take rates by 197 00:11:30,559 --> 00:11:35,400 Speaker 1: two years from now to uh that that could be 198 00:11:35,640 --> 00:11:37,600 Speaker 1: you know, it's easy to write on paper. But that 199 00:11:37,640 --> 00:11:41,400 Speaker 1: could be very, very difficult to steer politically, Ken Rogoff LUSA, 200 00:11:41,400 --> 00:11:43,920 Speaker 1: and I would like to shift the conversation to this 201 00:11:44,120 --> 00:11:46,760 Speaker 1: mystery of two thousand twenty one, which is the ascent 202 00:11:46,920 --> 00:11:50,040 Speaker 1: of bitcoin. You were out front on this with the 203 00:11:50,080 --> 00:11:54,679 Speaker 1: Curse of Cash, looking at cashless societies, the criminality of 204 00:11:54,760 --> 00:11:57,760 Speaker 1: the system. We looked at negative interest rates as well. 205 00:11:58,360 --> 00:12:02,680 Speaker 1: Your thoughts on the endure ability of bitcoin and crypto 206 00:12:02,800 --> 00:12:05,439 Speaker 1: and I take this off of Alan Hour's work at 207 00:12:05,440 --> 00:12:11,319 Speaker 1: the Bank of International Settlements fold bitcoin into your seminal work, 208 00:12:11,520 --> 00:12:16,000 Speaker 1: the Curse of Cash. Well, I talked about it extensively 209 00:12:16,160 --> 00:12:18,680 Speaker 1: the last part of my books all about central bank 210 00:12:18,720 --> 00:12:23,240 Speaker 1: digital currency and UH cryptocurrencies. I think the thing I 211 00:12:23,280 --> 00:12:26,200 Speaker 1: would say I got wrong was the pace at which 212 00:12:26,280 --> 00:12:31,120 Speaker 1: regulation would react. Regulation does need to react, I think, 213 00:12:31,400 --> 00:12:37,520 Speaker 1: much more dramatically than it has I suspect eventually, UH 214 00:12:37,840 --> 00:12:41,800 Speaker 1: pseudonymous cryptocurrencies are basically going to have to go band 215 00:12:41,880 --> 00:12:44,640 Speaker 1: in the advanced economies. And that was sort of a 216 00:12:44,640 --> 00:12:47,000 Speaker 1: prediction of my book, as it was just too easy 217 00:12:47,040 --> 00:12:50,760 Speaker 1: to avoid taxes, too easy induced. I mentioned before the program, 218 00:12:50,760 --> 00:12:53,120 Speaker 1: I'm doing a lot of research on these issues now, 219 00:12:53,720 --> 00:12:57,200 Speaker 1: but boy, you know, the dynamics of regulation, you know, 220 00:12:57,720 --> 00:13:02,800 Speaker 1: bitcoin e t f A, allowing the big investment houses 221 00:13:03,000 --> 00:13:08,200 Speaker 1: to set up you know, funds and current retention funds 222 00:13:08,240 --> 00:13:11,480 Speaker 1: to invest. An analogy I like to make is a 223 00:13:11,559 --> 00:13:14,040 Speaker 1: little bit like what if he found a diamond. Et 224 00:13:14,240 --> 00:13:16,840 Speaker 1: f was a really good idea, Okay, I want to 225 00:13:16,880 --> 00:13:18,600 Speaker 1: invest in, and then what if I tell you it's 226 00:13:18,679 --> 00:13:21,720 Speaker 1: blood diamonds that you're investing in. I mean, if you 227 00:13:21,760 --> 00:13:25,520 Speaker 1: look at the actual uses of pseudonymous cryptocurrencies, I don't 228 00:13:25,520 --> 00:13:28,480 Speaker 1: think it's something we can tolerate. But I got it 229 00:13:28,480 --> 00:13:30,679 Speaker 1: wrong five years ago at the pace at which this 230 00:13:30,760 --> 00:13:33,440 Speaker 1: would happen and drag out for a long time, and 231 00:13:33,480 --> 00:13:36,280 Speaker 1: therefore they can have a lot of value because I mean, 232 00:13:36,320 --> 00:13:38,400 Speaker 1: oil and gas have a lot of value even though 233 00:13:38,440 --> 00:13:40,640 Speaker 1: we think we won't be using them in four or 234 00:13:40,679 --> 00:13:43,920 Speaker 1: fifty years. Lisa, this is incredibly important. I thought you 235 00:13:44,040 --> 00:13:46,880 Speaker 1: just heard, Lisa, was James Diamond falling off his chair 236 00:13:46,960 --> 00:13:50,480 Speaker 1: down on Park Avenue. To deal with this, I mean, Lisa, 237 00:13:50,559 --> 00:13:54,480 Speaker 1: this is incredibly important. How the regulation, how Gensler hasn't 238 00:13:54,480 --> 00:13:57,000 Speaker 1: stepped in well, and he has been pretty vocal about 239 00:13:57,040 --> 00:13:58,719 Speaker 1: the need to do so. In trying to be a 240 00:13:58,720 --> 00:14:01,520 Speaker 1: little bit more aggressive going forward, But there has been 241 00:14:01,520 --> 00:14:04,160 Speaker 1: a feeling of by the government to not want to 242 00:14:04,200 --> 00:14:07,920 Speaker 1: stifle innovation at a time when the technological advancements of 243 00:14:07,960 --> 00:14:10,199 Speaker 1: the United States have really driven a lot of the growth. 244 00:14:10,240 --> 00:14:13,600 Speaker 1: Professor Rogolf, there is a theory out there that when 245 00:14:13,640 --> 00:14:16,560 Speaker 1: you pull the tide back at a certain point, there 246 00:14:16,760 --> 00:14:18,840 Speaker 1: is a lot of malfeasance. There are a lot of 247 00:14:18,960 --> 00:14:21,400 Speaker 1: very frothy spots that would get knocked out, and that 248 00:14:21,440 --> 00:14:24,200 Speaker 1: the Fed cannot allow that to happen because that would 249 00:14:24,240 --> 00:14:27,680 Speaker 1: torpedo and economy that it has very few tools left 250 00:14:27,880 --> 00:14:30,560 Speaker 1: to accurately prop up. Do you agree that the Federal 251 00:14:30,600 --> 00:14:33,520 Speaker 1: Reserve in the modern incarnation is going to be vastly 252 00:14:33,640 --> 00:14:37,040 Speaker 1: more involved in activists just by virtue of the potential 253 00:14:37,080 --> 00:14:42,640 Speaker 1: consequences If they're not, so you're going beyond cryptos I 254 00:14:42,680 --> 00:14:47,720 Speaker 1: am yeah. I mean, well, I think it. I don't 255 00:14:47,760 --> 00:14:50,600 Speaker 1: know if it makes them more activists or less. I mean, 256 00:14:50,680 --> 00:14:53,840 Speaker 1: I think in the immediate future, the next few years, 257 00:14:54,200 --> 00:14:57,280 Speaker 1: the difficulty for the FAT is that they might need 258 00:14:57,320 --> 00:15:01,480 Speaker 1: to raise interest rates cyclically quite a bit. And and and frankly, 259 00:15:01,600 --> 00:15:05,040 Speaker 1: I think the three basis point drop in real interest 260 00:15:05,120 --> 00:15:07,840 Speaker 1: rates that's happened since two thousand and seven. Looking at 261 00:15:07,840 --> 00:15:11,760 Speaker 1: the ten year UM, I think part of that trend, 262 00:15:11,880 --> 00:15:14,960 Speaker 1: maybe a third of it or sixth of it as trend, 263 00:15:15,200 --> 00:15:17,640 Speaker 1: but some of it's not, and they're likely to have 264 00:15:17,760 --> 00:15:21,360 Speaker 1: to retrace some of that. And at these market levels, 265 00:15:21,440 --> 00:15:23,800 Speaker 1: you know, you can just go down the asset list 266 00:15:23,920 --> 00:15:27,400 Speaker 1: of everything. It's going to be very painful. And that's 267 00:15:27,400 --> 00:15:30,720 Speaker 1: why I suspect that despite the tough talk that we're 268 00:15:30,720 --> 00:15:35,600 Speaker 1: going to get now, when things start pushing back, they're 269 00:15:35,640 --> 00:15:39,480 Speaker 1: going to find it harder to scale back than they think. 270 00:15:39,760 --> 00:15:42,280 Speaker 1: I'm not saying, you know again, I'm glad we're getting 271 00:15:42,280 --> 00:15:45,400 Speaker 1: out of this. I'm glad the economy is recovering, but 272 00:15:45,480 --> 00:15:48,920 Speaker 1: it's they're in a very difficult spot. Thank you so 273 00:15:49,000 --> 00:15:51,840 Speaker 1: much for an extended conversation with Harvard University, and of 274 00:15:51,880 --> 00:15:55,360 Speaker 1: course the Cursive cash wonderful, as well as other work 275 00:15:55,520 --> 00:16:04,080 Speaker 1: as well. Ye let us start strong with David Constance. 276 00:16:04,080 --> 00:16:06,920 Speaker 1: She few us strategists at Goldman Sex. He's been a 277 00:16:07,000 --> 00:16:10,880 Speaker 1: huge advantage to us in describing a bullmarket that he 278 00:16:10,960 --> 00:16:14,040 Speaker 1: needs to be invested in the big fear right now. 279 00:16:14,160 --> 00:16:17,360 Speaker 1: David is a silliness over Breath five stocks going up, 280 00:16:17,400 --> 00:16:21,240 Speaker 1: everything else terrible in the fear of a draw down. 281 00:16:21,400 --> 00:16:25,440 Speaker 1: Tie the two together. Well, the subject of a drawing down, 282 00:16:25,440 --> 00:16:27,600 Speaker 1: of course, will bring happiness to at least that you 283 00:16:27,680 --> 00:16:32,120 Speaker 1: hear about that. But the idea of a narrowing breath 284 00:16:32,240 --> 00:16:35,400 Speaker 1: market is I think an important characteristic of the last 285 00:16:35,400 --> 00:16:38,720 Speaker 1: six months. So there's been a relatively few stocks that 286 00:16:38,800 --> 00:16:41,960 Speaker 1: have driven the market to these pretty much record levels, 287 00:16:42,480 --> 00:16:46,120 Speaker 1: and the history would suggest that over the next three 288 00:16:46,160 --> 00:16:49,600 Speaker 1: or six months you'll get a larger than average, a 289 00:16:49,720 --> 00:16:52,720 Speaker 1: deeper than average draw down, say, for example, instead of 290 00:16:52,720 --> 00:16:55,760 Speaker 1: a four percent draw down over time, over a couple 291 00:16:55,760 --> 00:16:58,440 Speaker 1: of months period, may likely get an eight percent draw down. 292 00:16:59,120 --> 00:17:03,120 Speaker 1: That's what history would suggest. Once there's such a significant 293 00:17:03,520 --> 00:17:06,240 Speaker 1: narrowing of breath in the market. However, if you think 294 00:17:06,240 --> 00:17:08,560 Speaker 1: about where you end the not just a year, but 295 00:17:08,640 --> 00:17:12,200 Speaker 1: over that period of time, equity prices likely to be higher. 296 00:17:12,440 --> 00:17:14,919 Speaker 1: Why is that the case? All of the focus today 297 00:17:14,960 --> 00:17:18,480 Speaker 1: and your conversations before have been about the announcement of 298 00:17:18,560 --> 00:17:21,080 Speaker 1: the FED today and the dot plot and the tapering. 299 00:17:21,359 --> 00:17:24,600 Speaker 1: All those are important, but the fundamental issue and equities 300 00:17:24,680 --> 00:17:28,160 Speaker 1: has been this year you've had a huge spike in commodities, 301 00:17:28,440 --> 00:17:32,320 Speaker 1: You've had supply chain disruption, You've had difficulty in companies 302 00:17:32,520 --> 00:17:35,679 Speaker 1: finding and keeping employees, and you've had the variants the 303 00:17:35,720 --> 00:17:40,600 Speaker 1: delta and an omicron. All these issues. Yet profit margins 304 00:17:40,840 --> 00:17:44,320 Speaker 1: in the United States across every sector or at record 305 00:17:44,560 --> 00:17:48,800 Speaker 1: high levels. Managements have been very nimble in basically dealing 306 00:17:48,840 --> 00:17:50,639 Speaker 1: with these these issues. And so we look at the 307 00:17:51,400 --> 00:17:55,640 Speaker 1: two earnings up around eight percent. Largely economy is still 308 00:17:55,680 --> 00:17:59,800 Speaker 1: growing at a decelerating pace, margins increasing slightly. That is 309 00:17:59,840 --> 00:18:04,119 Speaker 1: the story for two. You have a flat valuation, in 310 00:18:04,160 --> 00:18:07,959 Speaker 1: my opinion, that's how you get to five are up 311 00:18:08,040 --> 00:18:11,840 Speaker 1: roughly maybe eleven percent, told to return when you add 312 00:18:11,840 --> 00:18:14,320 Speaker 1: and dividend yields. So, David, just to be clear, I'm 313 00:18:14,320 --> 00:18:17,080 Speaker 1: not rooting for a down draft here, but I do 314 00:18:17,200 --> 00:18:19,160 Speaker 1: think a lot of people have been talking about how 315 00:18:19,200 --> 00:18:22,560 Speaker 1: things look perilously valued. Your argument is they are not 316 00:18:22,640 --> 00:18:25,920 Speaker 1: because you're going to get the ongoing margin, a sort 317 00:18:25,920 --> 00:18:28,840 Speaker 1: of incremental growth in terms of how much they're expanding. 318 00:18:29,359 --> 00:18:31,840 Speaker 1: What's the down case scenario, just because I want to 319 00:18:31,840 --> 00:18:34,080 Speaker 1: be in brand here, you know, what's the sense that 320 00:18:34,119 --> 00:18:36,560 Speaker 1: we're going to get some kind of rate hike or 321 00:18:36,800 --> 00:18:40,520 Speaker 1: savings accounts that get depleted and the consumers say, no, Moss, 322 00:18:40,560 --> 00:18:42,679 Speaker 1: We're not going to accept and give you money and 323 00:18:42,800 --> 00:18:45,840 Speaker 1: not only pay you enough for more inflation, but then more. 324 00:18:47,160 --> 00:18:50,720 Speaker 1: The least of the disconnect and the discussion with most 325 00:18:50,760 --> 00:18:57,160 Speaker 1: portfolio managers relates to the situation that fast growing companies 326 00:18:57,160 --> 00:19:00,679 Speaker 1: that are fast profit forecast fast fast group profit growth 327 00:19:00,960 --> 00:19:05,160 Speaker 1: and high margin companies trade at race basically the same 328 00:19:05,640 --> 00:19:10,240 Speaker 1: valuation as fast growing but negative margins losing money or 329 00:19:10,520 --> 00:19:15,480 Speaker 1: very thin profit margins. Those two uh groups of stocks 330 00:19:15,920 --> 00:19:18,280 Speaker 1: is anomalous that they would be trading it roughly the 331 00:19:18,320 --> 00:19:21,240 Speaker 1: same valuation. To give you a number, roughly sort of 332 00:19:21,359 --> 00:19:24,359 Speaker 1: nine times enterprise value of sales. What are we talking about. 333 00:19:24,440 --> 00:19:28,160 Speaker 1: We're talking about companies with a forecast to say, revenue 334 00:19:28,160 --> 00:19:33,000 Speaker 1: growth both sides, but some are having margins, others basically 335 00:19:33,000 --> 00:19:36,800 Speaker 1: companies losing money. And the issue is as rates go higher, 336 00:19:37,000 --> 00:19:39,440 Speaker 1: and to be clear, that is the forecast of golden sects, 337 00:19:39,480 --> 00:19:42,520 Speaker 1: a tenure treasury yields will climb towards around two p 338 00:19:42,920 --> 00:19:45,879 Speaker 1: at the end of next year. In that environment, it 339 00:19:46,040 --> 00:19:50,240 Speaker 1: is exceedingly unlikely that you get the same valuation for 340 00:19:50,280 --> 00:19:52,800 Speaker 1: these two groups of stocks, and the idea the market 341 00:19:52,840 --> 00:19:56,920 Speaker 1: is unforgiving if companies which have high revenue growth and 342 00:19:57,000 --> 00:20:00,320 Speaker 1: all the valuation is dependent on that revenue growth, as 343 00:20:00,359 --> 00:20:03,400 Speaker 1: compared with companies where there's rapid revenue growth but there's 344 00:20:03,400 --> 00:20:06,160 Speaker 1: also high profit margins to work with. That's the central 345 00:20:06,200 --> 00:20:09,720 Speaker 1: tension in most conversations with fund managers because so many 346 00:20:09,760 --> 00:20:13,760 Speaker 1: of the money losing, loss making growth stocks are very 347 00:20:13,880 --> 00:20:17,119 Speaker 1: much in the meme aspector of the uh sor the 348 00:20:17,119 --> 00:20:20,320 Speaker 1: glamour stocks in the market that everyone has has been 349 00:20:20,400 --> 00:20:23,160 Speaker 1: so benefited from in the profit over the last couple 350 00:20:23,160 --> 00:20:25,399 Speaker 1: of years in terms of performance, David, the obsession now, 351 00:20:25,400 --> 00:20:27,159 Speaker 1: as you know, is to look forward twelve months. Can 352 00:20:27,200 --> 00:20:29,720 Speaker 1: we just reflect on the last twelve months briefly? I 353 00:20:29,720 --> 00:20:32,560 Speaker 1: remember about twelve months ago looking at your original forecast 354 00:20:32,600 --> 00:20:35,480 Speaker 1: for the SMP five hundred, which was forty three hundred, 355 00:20:35,680 --> 00:20:37,359 Speaker 1: and when that first came out, I think the SMP 356 00:20:37,520 --> 00:20:39,640 Speaker 1: was in and around thirty five hundred, and we looked 357 00:20:39,680 --> 00:20:42,480 Speaker 1: at your forecast, looked at JP Morgan's which was a 358 00:20:42,480 --> 00:20:45,080 Speaker 1: little bit higher, and everybody sat there and said, come on, 359 00:20:45,280 --> 00:20:47,120 Speaker 1: this is ridiculous. We're really going to have a year 360 00:20:47,119 --> 00:20:49,720 Speaker 1: that big. We broke through forty seven hundred before we 361 00:20:49,760 --> 00:20:51,280 Speaker 1: got to the end of the year, David, I wanted 362 00:20:51,280 --> 00:20:53,560 Speaker 1: them to stand from your standpoint when we play this 363 00:20:53,640 --> 00:20:55,920 Speaker 1: game each and every year at this time of year, 364 00:20:55,960 --> 00:20:58,600 Speaker 1: when you look back twelve months, what's been the biggest 365 00:20:58,680 --> 00:21:00,480 Speaker 1: lesson for you in the team as you speak to clients. 366 00:21:01,520 --> 00:21:03,680 Speaker 1: So the biggest lesson, and you're right, at this time 367 00:21:03,760 --> 00:21:06,800 Speaker 1: last year, our forecast for the SMP five hundred at 368 00:21:06,800 --> 00:21:12,359 Speaker 1: the end of and we lifted that in August. The 369 00:21:12,359 --> 00:21:15,639 Speaker 1: biggest surprise has been the resilient In my opinion, the 370 00:21:15,640 --> 00:21:20,080 Speaker 1: biggest surprise has been the resilience of corporate margins. Uh 371 00:21:20,119 --> 00:21:22,120 Speaker 1: and that's been a key driver of why you've had 372 00:21:22,680 --> 00:21:25,000 Speaker 1: earnings and has really been an earnings led market. I 373 00:21:25,000 --> 00:21:28,040 Speaker 1: think that's really the most important development. It has not 374 00:21:28,560 --> 00:21:33,479 Speaker 1: been a valuation expansion story. It's been a earnings led market. 375 00:21:33,520 --> 00:21:36,800 Speaker 1: And I looked into Jonathan and that is the same 376 00:21:37,040 --> 00:21:42,240 Speaker 1: outlook that we're anticipating, which is earnings climbing around eight percent. 377 00:21:42,560 --> 00:21:45,200 Speaker 1: The other aspect that was surprising to me is all 378 00:21:45,280 --> 00:21:47,199 Speaker 1: year long, and when you've been invited me on as 379 00:21:47,240 --> 00:21:49,639 Speaker 1: a guest most of this year, we've been looking and 380 00:21:49,800 --> 00:21:55,320 Speaker 1: handicapping the probability of a higher corporate tax rate. We 381 00:21:55,320 --> 00:21:57,680 Speaker 1: were assuming most of this year there would be some 382 00:21:57,800 --> 00:22:02,040 Speaker 1: legislation pass some reconciliation led inislation passed this year and 383 00:22:02,119 --> 00:22:05,879 Speaker 1: affecting and head wind to profit growth next year. But 384 00:22:05,960 --> 00:22:08,920 Speaker 1: now it looks as though whatever legislation may or may 385 00:22:08,960 --> 00:22:12,000 Speaker 1: not be passed, and I do expect some legislation be passed, 386 00:22:12,160 --> 00:22:15,920 Speaker 1: but that tax headwind tax hike will not affect company 387 00:22:15,960 --> 00:22:21,080 Speaker 1: profits until three So basically that extra earnings in yours 388 00:22:21,080 --> 00:22:24,080 Speaker 1: in yours to the investor. That's the other so profit 389 00:22:24,119 --> 00:22:27,560 Speaker 1: margins and the lack of an increase in tax legislation 390 00:22:27,680 --> 00:22:30,200 Speaker 1: I think have been a too surprises to me. David. 391 00:22:30,280 --> 00:22:33,520 Speaker 1: Your distinction, as you say, just shut up and own him, 392 00:22:33,720 --> 00:22:38,000 Speaker 1: own a high growth, own high margin, own high profits stocks. 393 00:22:38,240 --> 00:22:41,520 Speaker 1: And there's x number of those as well. Are they 394 00:22:41,640 --> 00:22:47,199 Speaker 1: under owned or over owned right now? Well, it depends 395 00:22:47,200 --> 00:22:49,919 Speaker 1: if you want to talk about the hedge fund community 396 00:22:50,040 --> 00:22:52,480 Speaker 1: or the mutual fund community, so Tom, and that makes 397 00:22:52,680 --> 00:22:56,959 Speaker 1: a difference distinction which which clients we're looking at. So 398 00:22:57,080 --> 00:22:59,720 Speaker 1: if you look at the hedge fund community, the leverage community, 399 00:22:59,800 --> 00:23:05,000 Speaker 1: by basically owning the leading stocks in the market. That's 400 00:23:05,000 --> 00:23:08,480 Speaker 1: been persistent for twenty years. We look at this every 401 00:23:08,560 --> 00:23:10,760 Speaker 1: ninety days and been looking at this since two thousand 402 00:23:10,840 --> 00:23:13,800 Speaker 1: and one, and that's been pretty much in the last 403 00:23:14,160 --> 00:23:16,080 Speaker 1: you know, four or five years, the same stocks, the 404 00:23:16,200 --> 00:23:18,639 Speaker 1: leading stocks in the market, largest companies in the market 405 00:23:18,800 --> 00:23:23,919 Speaker 1: have been dominating their performance and and and their portfolios. Uh. 406 00:23:23,920 --> 00:23:27,160 Speaker 1: And that's pretty much in and similar to the whole index, 407 00:23:27,320 --> 00:23:29,600 Speaker 1: if you will, If you're looking and so they're overweight 408 00:23:29,680 --> 00:23:31,840 Speaker 1: those stocks, and then you look into the mutual fund 409 00:23:31,840 --> 00:23:34,920 Speaker 1: area and they're significantly underweight. And here we're looking at 410 00:23:35,240 --> 00:23:39,440 Speaker 1: large cap core managers, value managers taking a different benchmark, 411 00:23:39,480 --> 00:23:42,119 Speaker 1: and growth managers. But in terms of your core mutual 412 00:23:42,160 --> 00:23:46,240 Speaker 1: fund managers, they're actually underweight those larger stocks, part because 413 00:23:46,280 --> 00:23:50,200 Speaker 1: they're such a significant waiting in the market. Five stocks 414 00:23:50,200 --> 00:23:53,240 Speaker 1: in the market. John this is incredibly important, this insight 415 00:23:53,320 --> 00:23:56,720 Speaker 1: from Mr Costan in the comparison contrast to what we 416 00:23:56,760 --> 00:23:59,640 Speaker 1: saw with the nifty fifty zillion years ago. Just gonna 417 00:23:59,720 --> 00:24:00,959 Speaker 1: some new Tom, I want to break and then we'll 418 00:24:01,000 --> 00:24:02,920 Speaker 1: return back to David cost in the Prime Minister Boris 419 00:24:02,960 --> 00:24:06,320 Speaker 1: Johnson holding a news conference from Downing Street at five 420 00:24:06,400 --> 00:24:09,720 Speaker 1: pm local times, so midday Eastern time, Tom to talk 421 00:24:09,760 --> 00:24:12,920 Speaker 1: about omicron the reporting out of the UK right now, 422 00:24:13,119 --> 00:24:16,639 Speaker 1: not expecting to get new measures, expecting an update on 423 00:24:16,680 --> 00:24:19,400 Speaker 1: the booster program. So one for the diary a little 424 00:24:19,400 --> 00:24:20,600 Speaker 1: bit later. David, I want to come back to you 425 00:24:20,640 --> 00:24:22,520 Speaker 1: on multiples. We talked a lot about earnings has been 426 00:24:22,560 --> 00:24:24,720 Speaker 1: the big surprise if this year you're talking about earning 427 00:24:24,720 --> 00:24:27,040 Speaker 1: has been the big surprise for next year to potentially 428 00:24:27,320 --> 00:24:28,959 Speaker 1: let's just sit on multiples for a moment. It's been 429 00:24:29,000 --> 00:24:31,520 Speaker 1: some confusion around why multiples are so elevated, and want 430 00:24:31,520 --> 00:24:33,879 Speaker 1: to understand what it is from your perspective. Is it 431 00:24:33,960 --> 00:24:37,560 Speaker 1: that early recovery where earnings starts to deliver upside surprise, 432 00:24:37,600 --> 00:24:39,800 Speaker 1: beat and raise, beat and raise, that's where Deutsche Banks 433 00:24:39,800 --> 00:24:41,600 Speaker 1: sit on the idea. Or is it the fact that 434 00:24:41,720 --> 00:24:43,639 Speaker 1: rates are low and if it's rates, what does that 435 00:24:43,640 --> 00:24:45,640 Speaker 1: mean for the FED and what that means for multiples 436 00:24:45,680 --> 00:24:47,480 Speaker 1: going forward? Can you give me your view on that 437 00:24:47,600 --> 00:24:50,760 Speaker 1: right now, David. So, we think about evaluation and an 438 00:24:50,800 --> 00:24:55,080 Speaker 1: absolute metric. If you look at enterprise VEDA, sales, enterprise VADA, 439 00:24:55,160 --> 00:24:58,080 Speaker 1: even the price earnings multiple, any of those metrics, the 440 00:24:58,080 --> 00:25:02,000 Speaker 1: equity valuations are extremely high. I would say the rationale 441 00:25:02,359 --> 00:25:07,479 Speaker 1: for the market being reasonably attractive does depend on the 442 00:25:07,600 --> 00:25:10,840 Speaker 1: extremely low interest rate environment that we have, whether that's 443 00:25:10,880 --> 00:25:15,160 Speaker 1: corporate bond yields, tips UH inflation, you know, protected securities, 444 00:25:15,280 --> 00:25:18,200 Speaker 1: or even nominal treasure yields, and all those interest rate 445 00:25:18,240 --> 00:25:22,960 Speaker 1: related metrics, equities look reasonably attractive. So, Jonathan, an important 446 00:25:23,280 --> 00:25:27,640 Speaker 1: construct to think about is that in history, it shows 447 00:25:28,520 --> 00:25:33,040 Speaker 1: six months before a FED hike six months after a 448 00:25:33,080 --> 00:25:36,520 Speaker 1: FED hike that one year period. Basically you have multiples 449 00:25:36,520 --> 00:25:39,800 Speaker 1: flat in every one of the tightening regimes that you've 450 00:25:39,800 --> 00:25:43,119 Speaker 1: seen over time. That's been the experience, and so that 451 00:25:43,240 --> 00:25:47,880 Speaker 1: happens to match up pretty closely with calendar year twenty two. Coincidentally, 452 00:25:48,040 --> 00:25:52,080 Speaker 1: you're starting now, it's about six months before the expected 453 00:25:52,280 --> 00:25:55,280 Speaker 1: first hike and six months afterward, of course, put you 454 00:25:55,320 --> 00:25:58,879 Speaker 1: at the end of two. That's not the forecast for 455 00:25:58,920 --> 00:26:01,879 Speaker 1: a stable multiple. That's on upon which we make debate 456 00:26:01,960 --> 00:26:05,600 Speaker 1: the forecast. But as a result, that's consistent with history. 457 00:26:05,640 --> 00:26:07,720 Speaker 1: Where we think about it is rates are going higher, 458 00:26:07,960 --> 00:26:10,560 Speaker 1: risk premium going a bit lower. Why is it a 459 00:26:10,600 --> 00:26:14,800 Speaker 1: bit lower? Consumer confidence remains high, unemployment falling, and wages 460 00:26:14,840 --> 00:26:18,280 Speaker 1: are increasing. Number one and number two the policy uncertainty, 461 00:26:18,400 --> 00:26:21,720 Speaker 1: our referenced earlier about tax hikes. UH, the election for 462 00:26:21,800 --> 00:26:25,160 Speaker 1: next November. So once that's beyond us, you'll be basically 463 00:26:25,160 --> 00:26:29,360 Speaker 1: back to a roughly stable valuation around twenty times, which 464 00:26:29,400 --> 00:26:33,600 Speaker 1: is the valuation now historically high, but still reasonably attractive 465 00:26:33,720 --> 00:26:38,240 Speaker 1: in a low interest rate environment, even with rates rising. David, 466 00:26:38,400 --> 00:26:40,399 Speaker 1: just brilliant. I hate to reduce the whole body of 467 00:26:40,440 --> 00:26:43,040 Speaker 1: work to just an index level. Cool but fantastic on 468 00:26:43,040 --> 00:26:45,359 Speaker 1: the index level through much of the last twelve months, sir, 469 00:26:45,440 --> 00:26:47,600 Speaker 1: to you and the team. Gonna catch up as always, 470 00:26:47,640 --> 00:26:50,080 Speaker 1: enjoyed the holidays, David. Thank you, Sir David Coasting that 471 00:26:50,480 --> 00:27:00,280 Speaker 1: of Goldman Sachs. Dana Peterson now chief econnor US at 472 00:27:00,280 --> 00:27:03,359 Speaker 1: the Conference Board. And what's important is our other guests 473 00:27:03,400 --> 00:27:06,760 Speaker 1: focus on the unique skills of the Conference Board of 474 00:27:06,800 --> 00:27:10,520 Speaker 1: measuring American economic dynamics. Stay in a good morning. This 475 00:27:10,600 --> 00:27:14,840 Speaker 1: is such an important conversation on the ability to sustain 476 00:27:15,080 --> 00:27:19,040 Speaker 1: economic growth. What is the call that you have twelve 477 00:27:19,080 --> 00:27:23,800 Speaker 1: months forward on real g d P. We're thinking that 478 00:27:23,840 --> 00:27:25,639 Speaker 1: we're probably going to expand by around three and a 479 00:27:25,680 --> 00:27:29,280 Speaker 1: half percent next year, and that's not including a build 480 00:27:29,320 --> 00:27:32,120 Speaker 1: back better plan. UH. Certainly if the build back Better 481 00:27:32,160 --> 00:27:35,080 Speaker 1: plan is passed, then we could potentially see growth around 482 00:27:35,080 --> 00:27:38,920 Speaker 1: four percent. So you're talking about China, like nominal GDP, 483 00:27:39,080 --> 00:27:41,960 Speaker 1: we're gonna have who knows the number, six, seven, eight, 484 00:27:42,080 --> 00:27:45,040 Speaker 1: nine percent top line g d P. What does that 485 00:27:45,080 --> 00:27:49,520 Speaker 1: do to the conference boards Corporate America. Well, certainly that 486 00:27:49,520 --> 00:27:52,359 Speaker 1: would be positive if a lot of that's driven by consumption, 487 00:27:52,400 --> 00:27:56,400 Speaker 1: And certainly we're anticipating that hopefully next year that much 488 00:27:56,400 --> 00:27:59,880 Speaker 1: of the services activity will return to pre pandemic levels, 489 00:27:59,920 --> 00:28:02,600 Speaker 1: or at least approach that level. And that's really going 490 00:28:02,640 --> 00:28:05,480 Speaker 1: to be highly dependent upon the evolution of the pandemic, 491 00:28:06,000 --> 00:28:08,320 Speaker 1: whether or not people are vaccinated, whether or not people 492 00:28:08,359 --> 00:28:12,200 Speaker 1: feel comfortable getting out there and going on trips, traveling, 493 00:28:12,960 --> 00:28:17,000 Speaker 1: visiting restaurants, hotels, et cetera. Danta. In about an hour, 494 00:28:17,080 --> 00:28:19,119 Speaker 1: we're going to get those US retail sales for the 495 00:28:19,160 --> 00:28:22,479 Speaker 1: month of November. We expect an increase. How do you 496 00:28:22,560 --> 00:28:25,920 Speaker 1: parse out the increased due to inflation from the increased 497 00:28:25,960 --> 00:28:28,919 Speaker 1: due to consumers with an ever a strong pile of 498 00:28:28,960 --> 00:28:32,520 Speaker 1: cash willing to spend. Sure, I think the easiest thing 499 00:28:32,560 --> 00:28:35,360 Speaker 1: is just kind of take that nominal headline and deflate 500 00:28:35,400 --> 00:28:38,840 Speaker 1: it by the c P I and you'll see essentially 501 00:28:38,880 --> 00:28:42,000 Speaker 1: that uh, much of it's probably going to be related 502 00:28:42,040 --> 00:28:45,200 Speaker 1: to price increases. But still in all our own survey 503 00:28:45,280 --> 00:28:48,000 Speaker 1: suggests that consumers, even though they're a little bit dower 504 00:28:48,160 --> 00:28:51,640 Speaker 1: on the outlook, they're still willing to spend. Certainly, our 505 00:28:51,800 --> 00:28:54,960 Speaker 1: holiday shopping UH survey said that people are willing to 506 00:28:55,000 --> 00:28:57,920 Speaker 1: get out there and spend especially go there, go to malls, 507 00:28:57,960 --> 00:29:00,960 Speaker 1: and do in person shopping. So were anticipating that that's 508 00:29:00,960 --> 00:29:03,200 Speaker 1: going to show up in the retail sales today. Does 509 00:29:03,200 --> 00:29:06,120 Speaker 1: it matter that they're shopping at LVMH perhaps and some 510 00:29:06,200 --> 00:29:08,520 Speaker 1: of the other luxury providers. I'm not going to go 511 00:29:08,560 --> 00:29:12,120 Speaker 1: back into that, and that perhaps they're restricting some of 512 00:29:12,120 --> 00:29:15,400 Speaker 1: their purchases at Target, at Walmart where you're not seeing 513 00:29:15,440 --> 00:29:20,120 Speaker 1: as easy of a pass through in some of the inflation. Well, 514 00:29:20,160 --> 00:29:22,600 Speaker 1: I think it really depends upon the shopper. The person 515 00:29:22,640 --> 00:29:26,160 Speaker 1: who's shopping at you know, Walmart or Target may not 516 00:29:26,200 --> 00:29:30,640 Speaker 1: necessarily be shopping at Louis Vuitton. UM. But certainly, UH, 517 00:29:30,760 --> 00:29:35,360 Speaker 1: consumers do do have pent up savings that they've had, 518 00:29:35,760 --> 00:29:39,200 Speaker 1: certainly because we had big stimulus checks. Also, many more 519 00:29:39,240 --> 00:29:42,280 Speaker 1: people are employed relative to when they were before. But 520 00:29:42,360 --> 00:29:45,080 Speaker 1: certainly we're going to see more caution in terms of 521 00:29:45,160 --> 00:29:48,880 Speaker 1: people looking for discounts, and certainly if we that's not 522 00:29:48,960 --> 00:29:52,000 Speaker 1: delivered at the big box stores, that we're going to 523 00:29:52,040 --> 00:29:54,680 Speaker 1: see weaker spending going forward. Is a general statement, what 524 00:29:54,840 --> 00:29:56,880 Speaker 1: is the strength of the consumer? I have trouble with 525 00:29:56,920 --> 00:30:01,880 Speaker 1: a weak consumer and a nine percent nominal GDP economy. Well, 526 00:30:02,240 --> 00:30:04,440 Speaker 1: the thing is that the consumer really isn't weak. It's 527 00:30:04,480 --> 00:30:07,880 Speaker 1: just that they have soured in their opinion given the 528 00:30:07,920 --> 00:30:11,280 Speaker 1: fact that inflation is high, they're still worried about COVID 529 00:30:11,360 --> 00:30:14,920 Speaker 1: cases arising. We have Amicron in front of us potentially, 530 00:30:15,240 --> 00:30:18,000 Speaker 1: But when we look at incomes, they're still very high. 531 00:30:18,240 --> 00:30:20,960 Speaker 1: Many people are working. Our unemployment rate is at four 532 00:30:21,040 --> 00:30:24,440 Speaker 1: point um. That does not signal a week consumer. It 533 00:30:24,560 --> 00:30:26,880 Speaker 1: just says that maybe they're just a little bit soured 534 00:30:26,960 --> 00:30:29,320 Speaker 1: right now in the environment. So how do you square 535 00:30:29,720 --> 00:30:31,720 Speaker 1: what they say and what they do? And we're talking 536 00:30:31,760 --> 00:30:34,840 Speaker 1: about the University of Michigan Consumer Sentiment survey that's actually 537 00:30:34,880 --> 00:30:37,960 Speaker 1: been deteriorating, a slight rebound last month, but not much. 538 00:30:38,560 --> 00:30:40,960 Speaker 1: At the same time that everyone comes on and says 539 00:30:40,960 --> 00:30:44,680 Speaker 1: the consumer is incredibly strong and willing to spend well, 540 00:30:45,120 --> 00:30:47,960 Speaker 1: consumers may say one thing, but what they do is 541 00:30:47,960 --> 00:30:50,040 Speaker 1: more important than what they do. We can find out 542 00:30:50,040 --> 00:30:52,800 Speaker 1: in the retail sales and the PC data that we 543 00:30:52,920 --> 00:30:55,560 Speaker 1: received later on in the month, and so far consumers 544 00:30:55,600 --> 00:30:59,239 Speaker 1: have been getting out there and they've been spending. We've 545 00:30:59,240 --> 00:31:01,240 Speaker 1: got to leave with this, and cute Danny Pitterson of 546 00:31:01,280 --> 00:31:11,320 Speaker 1: the conference port right now, Alan Ruskin, chief international strategist 547 00:31:11,320 --> 00:31:15,240 Speaker 1: at Deutsche Bank and Allen congratulation on a trenchant note. 548 00:31:15,360 --> 00:31:18,400 Speaker 1: Your note on the terminal rate? What is the terminal 549 00:31:18,720 --> 00:31:23,280 Speaker 1: rate and why should J. Paul focus on it? Well, Tom, 550 00:31:23,680 --> 00:31:27,720 Speaker 1: the terminal rates really seen as the peak rate for 551 00:31:28,000 --> 00:31:32,240 Speaker 1: FED funds in any particular cycle. And it's critical in 552 00:31:32,320 --> 00:31:36,320 Speaker 1: this point because the markets expecting a very low terminal 553 00:31:36,440 --> 00:31:38,120 Speaker 1: rate in the order about one and a half to 554 00:31:38,200 --> 00:31:41,080 Speaker 1: one and three quarter percent. And if you think that 555 00:31:41,440 --> 00:31:44,640 Speaker 1: the FATS peak funds rate is going to be one 556 00:31:44,680 --> 00:31:46,920 Speaker 1: and a half to one in three percent, then there's 557 00:31:46,960 --> 00:31:49,120 Speaker 1: no way that the tenure heeld is going to back 558 00:31:49,240 --> 00:31:52,000 Speaker 1: up particularly sharply. And if the tenure heel doesn't back 559 00:31:52,080 --> 00:31:55,680 Speaker 1: up particularly sharply, then monetary conditions won't tighten very much 560 00:31:55,920 --> 00:31:58,800 Speaker 1: and the equity market will prove pretty resilient as well, 561 00:31:59,240 --> 00:32:02,680 Speaker 1: So all asset markets are tied together with where the 562 00:32:02,800 --> 00:32:05,760 Speaker 1: terminal rate is. Your Matthew Lozerli is a lot on this. 563 00:32:05,920 --> 00:32:08,200 Speaker 1: It's been one of my great themes. Good morning, David 564 00:32:08,240 --> 00:32:11,400 Speaker 1: Stubs over at JP Morgan as well, Ellen Ruskin. Do 565 00:32:11,520 --> 00:32:16,760 Speaker 1: we underestimate the overlay of technology engaging where the terminal 566 00:32:16,920 --> 00:32:21,240 Speaker 1: rate is or should be? Do we know the technological 567 00:32:21,400 --> 00:32:24,280 Speaker 1: path of the next decade that we have to try 568 00:32:24,360 --> 00:32:28,680 Speaker 1: to get to in that terminal rate? I don't think so, Tom, 569 00:32:28,760 --> 00:32:31,400 Speaker 1: So I am really distinguished the terminal rate and the 570 00:32:31,520 --> 00:32:34,440 Speaker 1: long term our star. So you can have a low 571 00:32:35,080 --> 00:32:40,720 Speaker 1: our star that relates to the really technological change, the 572 00:32:40,880 --> 00:32:45,800 Speaker 1: natural rate of growth perhaps being lower for longer. But 573 00:32:46,080 --> 00:32:48,720 Speaker 1: I think in terms of this cycle, you're fighting a 574 00:32:48,800 --> 00:32:51,960 Speaker 1: particularly inflation problem and you can have a very high 575 00:32:52,200 --> 00:32:55,640 Speaker 1: peak or terminal funds rate even with a long term 576 00:32:55,800 --> 00:32:59,760 Speaker 1: long equilibrium our star. So I wouldn't tie those two 577 00:33:00,000 --> 00:33:02,360 Speaker 1: eaches together, and I think it's very important to separate 578 00:33:02,440 --> 00:33:04,440 Speaker 1: them in fact. So Allan, let's just build on that, 579 00:33:04,520 --> 00:33:06,880 Speaker 1: and let's start here, because you've done some tremendous research 580 00:33:06,960 --> 00:33:08,440 Speaker 1: on this. In the last couple of months. I've been 581 00:33:08,480 --> 00:33:11,280 Speaker 1: readly through it all, you talked about how unusually it 582 00:33:11,440 --> 00:33:13,080 Speaker 1: is to have nominal growth as high as it is 583 00:33:13,240 --> 00:33:15,720 Speaker 1: right now, and to have yields and rates where they 584 00:33:15,760 --> 00:33:18,400 Speaker 1: are at the moment too. Just how unusual is that album. 585 00:33:19,760 --> 00:33:24,680 Speaker 1: There's no historical precedent for nominal GDP running. It'say eleven percent, 586 00:33:24,840 --> 00:33:26,960 Speaker 1: Q four and Q four, which is what we probably 587 00:33:27,000 --> 00:33:30,760 Speaker 1: will get with the GDP numbers. And uh, you know 588 00:33:31,520 --> 00:33:34,640 Speaker 1: a five year tracking you know where it is currently, 589 00:33:34,800 --> 00:33:37,640 Speaker 1: or you know, all rates the rate structures sub two 590 00:33:37,720 --> 00:33:41,400 Speaker 1: percent in the treasury treasury market, So there really is 591 00:33:41,520 --> 00:33:45,960 Speaker 1: nothing even close to this, John, which then also begs 592 00:33:46,000 --> 00:33:48,720 Speaker 1: some very important questions because I think a lot of 593 00:33:48,800 --> 00:33:51,120 Speaker 1: people are going to say, well, wait a minute, the 594 00:33:51,240 --> 00:33:53,840 Speaker 1: old curve, which has been such a reliable signal, is 595 00:33:53,880 --> 00:33:57,080 Speaker 1: going to invert shortly, and you know, watch out, guys, 596 00:33:57,160 --> 00:33:59,920 Speaker 1: in eighteen months to two years, you're gonna have a recess. 597 00:34:00,320 --> 00:34:02,400 Speaker 1: I think that yield curve in general is not giving 598 00:34:02,440 --> 00:34:06,080 Speaker 1: a pure signal, or you know, past historical precedent is 599 00:34:06,120 --> 00:34:08,680 Speaker 1: not accurate either. Does it tell you something about how 600 00:34:08,800 --> 00:34:11,040 Speaker 1: much work this FED will need to do? And this 601 00:34:11,160 --> 00:34:13,439 Speaker 1: goes back to the conversation you were having with Tom 602 00:34:13,560 --> 00:34:15,120 Speaker 1: just a moment ago. There is a belief that we 603 00:34:15,200 --> 00:34:17,880 Speaker 1: stop at one seventy five, that the FED funds rate 604 00:34:17,920 --> 00:34:19,879 Speaker 1: will peek out there, and I sense that you're push 605 00:34:19,960 --> 00:34:21,680 Speaker 1: him back against that in just the comments you had 606 00:34:21,880 --> 00:34:23,239 Speaker 1: a couple of minutes ago out and what kind of 607 00:34:23,320 --> 00:34:25,760 Speaker 1: number have you got in mind? You know, I pushed 608 00:34:25,800 --> 00:34:28,840 Speaker 1: back it against it, you know, pretty strongly. So you know, 609 00:34:28,920 --> 00:34:31,719 Speaker 1: you think in terms of a real funds rate, and 610 00:34:31,960 --> 00:34:34,719 Speaker 1: historically a real funds rate peak would be nearer, say 611 00:34:34,840 --> 00:34:37,720 Speaker 1: three percent in the last cycle. And we're always fighting 612 00:34:37,800 --> 00:34:39,920 Speaker 1: the last war, right, We're always thinking in terms of 613 00:34:39,960 --> 00:34:43,759 Speaker 1: the last cycle that's freshest in our memories. Nominal the 614 00:34:43,840 --> 00:34:46,840 Speaker 1: real funds rate went up to about zero UM. So 615 00:34:47,000 --> 00:34:49,560 Speaker 1: even then, if you just took a zero real funds rate, 616 00:34:49,920 --> 00:34:54,000 Speaker 1: you would have, you know, certainly a nominal funds rate 617 00:34:54,040 --> 00:34:55,680 Speaker 1: to say two and a half percent, that would be 618 00:34:55,680 --> 00:35:00,040 Speaker 1: almost a minimum. Now, I think the last cycle you 619 00:35:00,080 --> 00:35:01,920 Speaker 1: didn't have an inflation problem at all. I think co 620 00:35:02,080 --> 00:35:05,680 Speaker 1: inflation from you know, this core PC was just above two, 621 00:35:06,680 --> 00:35:09,840 Speaker 1: so the Fed wasn't fighting inflation. So in this cycle 622 00:35:09,920 --> 00:35:12,840 Speaker 1: you're fighting inflation. So there's even more reason why you 623 00:35:12,840 --> 00:35:17,279 Speaker 1: should actually have a much higher terminal rate. Given that, 624 00:35:17,520 --> 00:35:19,680 Speaker 1: and given the fact that the yield curve has caused 625 00:35:19,760 --> 00:35:22,280 Speaker 1: for a lot of people's concern, should have continued to flatten. 626 00:35:22,800 --> 00:35:25,719 Speaker 1: Do you think that the market is underestimating a discussion 627 00:35:25,760 --> 00:35:28,480 Speaker 1: about balance sheet roll off in the nearer term, as 628 00:35:28,520 --> 00:35:30,719 Speaker 1: that would likely affect the long end of the yield 629 00:35:30,760 --> 00:35:35,440 Speaker 1: curve more quickly. But I think the market's underestimating perhaps 630 00:35:35,520 --> 00:35:38,160 Speaker 1: this sort of general story that relates to taper. They're 631 00:35:38,200 --> 00:35:43,920 Speaker 1: not treating taper as any sort of tightening, and I 632 00:35:44,040 --> 00:35:46,120 Speaker 1: think it is some tightening because if you look at 633 00:35:46,160 --> 00:35:49,560 Speaker 1: the flow of funds and you look at the role 634 00:35:49,640 --> 00:35:52,960 Speaker 1: the Fed has played in financing the public sector deficit, 635 00:35:53,200 --> 00:35:56,279 Speaker 1: it has been absolutely critical. So you know, just as 636 00:35:56,400 --> 00:36:01,360 Speaker 1: that taper gets accelerated and the Feds all diminishes, I 637 00:36:01,440 --> 00:36:04,120 Speaker 1: think you will see term premiers start to pick up. 638 00:36:04,400 --> 00:36:06,160 Speaker 1: But I think the more important story from the bond 639 00:36:06,200 --> 00:36:08,879 Speaker 1: mark is less the term premius side than the risk 640 00:36:09,000 --> 00:36:11,200 Speaker 1: neutral rate. I think the risk neutral rate is the 641 00:36:11,280 --> 00:36:12,880 Speaker 1: thing that's going to have to go up. You know 642 00:36:12,960 --> 00:36:15,840 Speaker 1: substantially that risk neutral rates is you know, essentially the 643 00:36:15,920 --> 00:36:18,440 Speaker 1: expected funds rate. Given the fact that you seem to 644 00:36:18,480 --> 00:36:20,960 Speaker 1: think that the signal coming from the bond market is 645 00:36:21,040 --> 00:36:23,840 Speaker 1: highly messy at best, and that it is not accurate 646 00:36:23,920 --> 00:36:27,040 Speaker 1: in terms of a portrayal of the overall economy. Do 647 00:36:27,120 --> 00:36:29,359 Speaker 1: you think that Jack Avlin over a Crescent Capital came 648 00:36:29,400 --> 00:36:32,040 Speaker 1: on earlier and so the bond market is smart money 649 00:36:32,680 --> 00:36:35,080 Speaker 1: is no longer correct, that the bond market no longer 650 00:36:35,160 --> 00:36:37,319 Speaker 1: can be a signal for equities in the same way 651 00:36:37,640 --> 00:36:40,680 Speaker 1: that it once was. Yeah, I think it is problematic. 652 00:36:40,760 --> 00:36:43,320 Speaker 1: I think what you've had. I think people underestimate this 653 00:36:43,640 --> 00:36:48,279 Speaker 1: is said, and you don't see officials talk about this sufficiently. 654 00:36:48,719 --> 00:36:52,960 Speaker 1: Is this drop of helicopter money GDPs worth of empty 655 00:36:53,080 --> 00:36:57,360 Speaker 1: balances dropped into the system that essentially cut creating bubble 656 00:36:57,480 --> 00:37:01,320 Speaker 1: like conditions in all asset claus is inclusive of the 657 00:37:01,360 --> 00:37:04,319 Speaker 1: bond market. This liquidity is going everywhere. You know, it's 658 00:37:04,360 --> 00:37:06,480 Speaker 1: going into bitcoin, it's going to equities, but it's also 659 00:37:06,520 --> 00:37:08,960 Speaker 1: doing at the bondom market. Some people talk about its 660 00:37:09,040 --> 00:37:13,000 Speaker 1: excess savings, but I preferred to talk about as excess liquidity. 661 00:37:13,440 --> 00:37:15,759 Speaker 1: I want to say the Fed's responsible for some of this. 662 00:37:16,040 --> 00:37:19,279 Speaker 1: This is not just household savings, per say, policymakers are 663 00:37:19,280 --> 00:37:22,600 Speaker 1: actually responsible for this and this was prudent policy in 664 00:37:22,719 --> 00:37:26,239 Speaker 1: March of twenty but it's not prudent policy now, you know. 665 00:37:26,360 --> 00:37:31,960 Speaker 1: In November December, Allen Mr Ara de Juan at one 666 00:37:32,080 --> 00:37:35,359 Speaker 1: point wanted to look south and west across the new 667 00:37:35,440 --> 00:37:38,719 Speaker 1: Turkish reach that has been shattered over the last five 668 00:37:38,840 --> 00:37:42,120 Speaker 1: six eight years and shattered today with new weakness in 669 00:37:42,160 --> 00:37:45,640 Speaker 1: Turkish lera out of fourteen point seven four. You and 670 00:37:45,760 --> 00:37:50,760 Speaker 1: I spent a story evening in Dubai waxing philosophical about 671 00:37:50,840 --> 00:37:54,920 Speaker 1: emerging markets. Is that the great unknown for two thousand 672 00:37:55,040 --> 00:37:59,239 Speaker 1: twenty two is all this Jerome Powell chat and what 673 00:37:59,480 --> 00:38:03,000 Speaker 1: it means for for emerging markets who do not have 674 00:38:03,200 --> 00:38:07,520 Speaker 1: the degrees of freedom that America has. Yeah, I think 675 00:38:07,560 --> 00:38:10,000 Speaker 1: the emerging market story is complicated, you know. I think 676 00:38:10,040 --> 00:38:12,759 Speaker 1: there's a sense that if we get through the early 677 00:38:12,920 --> 00:38:16,440 Speaker 1: stages of fair tightening, and particularly if the Fed does 678 00:38:16,520 --> 00:38:21,799 Speaker 1: what the market expects, then the emerging market complex can 679 00:38:21,840 --> 00:38:25,040 Speaker 1: trade better in the second half of two I think 680 00:38:25,080 --> 00:38:27,360 Speaker 1: in the end it's still going to come around to 681 00:38:27,520 --> 00:38:31,080 Speaker 1: the story about the terminal rate. If if the terminal 682 00:38:31,160 --> 00:38:33,839 Speaker 1: rate is substantially higher than what the markets priced, then 683 00:38:34,320 --> 00:38:36,839 Speaker 1: then you know, em is still gonna have a hard 684 00:38:36,920 --> 00:38:39,759 Speaker 1: time of it. Alan just wonderful as always in good 685 00:38:39,800 --> 00:38:41,839 Speaker 1: to hear from you, sir, And I'm Ruskin at Deutsche Bank. 686 00:38:48,320 --> 00:38:51,240 Speaker 1: If you are a fancy John and you go to India, 687 00:38:51,360 --> 00:38:54,480 Speaker 1: you stay at the Oberoi and say you went to India. 688 00:38:54,600 --> 00:38:57,240 Speaker 1: That's in Mumbai, and it's a fancy six star hotel. 689 00:38:57,400 --> 00:38:59,760 Speaker 1: That that's someone John goes to when he goes to India. 690 00:39:00,480 --> 00:39:04,200 Speaker 1: Bacti insiety to something different. She is world claimed on 691 00:39:04,360 --> 00:39:07,360 Speaker 1: going where others don't. And Bacti I'm not going to 692 00:39:07,440 --> 00:39:10,120 Speaker 1: pronounce the names because I'll just kill it, but we 693 00:39:10,239 --> 00:39:12,759 Speaker 1: are thrilled to have you here. Is you were north 694 00:39:12,840 --> 00:39:17,040 Speaker 1: of the Ganges, somewhere south of Kutman. Do what does 695 00:39:17,120 --> 00:39:22,560 Speaker 1: the real India look like in this pandemic? So the 696 00:39:22,680 --> 00:39:26,480 Speaker 1: real India looks like real rural America. You know this fear, 697 00:39:27,080 --> 00:39:32,680 Speaker 1: high rates of unvaccinated individuals, patients coming to the hospital, confused, scared, 698 00:39:33,239 --> 00:39:35,879 Speaker 1: and there's a real fear after what India lived through 699 00:39:35,960 --> 00:39:38,560 Speaker 1: during the second set, that it's all about to start 700 00:39:38,600 --> 00:39:41,640 Speaker 1: again and they're getting ready and getting prepared to be 701 00:39:41,719 --> 00:39:44,040 Speaker 1: able to fight the new bariant. So you got a 702 00:39:44,080 --> 00:39:47,200 Speaker 1: cup of coffee with the leadership at Viser at Maderna, 703 00:39:47,320 --> 00:39:50,160 Speaker 1: you and Dr Adalge will sit down with them and say, look, 704 00:39:50,239 --> 00:39:53,279 Speaker 1: here's the reality of helping the rich and poor of 705 00:39:53,320 --> 00:40:01,800 Speaker 1: the unvaccinated. What is the plan to get the unvaccinated vaccinated? Twofold? Globally, 706 00:40:01,920 --> 00:40:05,080 Speaker 1: the issue still is supply chain and so like improving 707 00:40:05,120 --> 00:40:09,920 Speaker 1: supply chain, providing vaccines without a coastroalth life, ensuring that 708 00:40:10,040 --> 00:40:13,040 Speaker 1: those vaccines that reached that last mile, that lost village 709 00:40:13,400 --> 00:40:16,680 Speaker 1: is really key and that involves partnerships with government um 710 00:40:17,080 --> 00:40:21,759 Speaker 1: locally and in other higher resource settings. The issues are 711 00:40:21,800 --> 00:40:25,400 Speaker 1: really around anti vaccine sentiment and how do we combat 712 00:40:25,440 --> 00:40:28,160 Speaker 1: anti vaccine sentiment. And I don't think any of us 713 00:40:28,200 --> 00:40:30,680 Speaker 1: thought that we'd be having this conversation twenty months into 714 00:40:30,680 --> 00:40:33,560 Speaker 1: the pandemic dr Insatia. So the India is getting prepared 715 00:40:33,920 --> 00:40:36,800 Speaker 1: for the omicron variant to spread akin to what we 716 00:40:36,840 --> 00:40:40,400 Speaker 1: saw in the second wave, which was terrifying by all accounts, 717 00:40:40,520 --> 00:40:42,400 Speaker 1: by the images that we saw and I'm sure by 718 00:40:42,400 --> 00:40:44,840 Speaker 1: the aftermath that you witnessed, what does that look like 719 00:40:45,200 --> 00:40:48,520 Speaker 1: with the omicron variant based on the initial evidence that 720 00:40:48,600 --> 00:40:52,400 Speaker 1: we have so luckily for us, when we're seeing in 721 00:40:52,520 --> 00:40:57,120 Speaker 1: South Africa is while reinfectionist comment hospitalization as comment less 722 00:40:57,160 --> 00:40:59,840 Speaker 1: patients are requiring oxygen. Now, what we saw in this 723 00:41:00,080 --> 00:41:03,360 Speaker 1: consurge in India was that a lot of patients guide 724 00:41:03,360 --> 00:41:07,440 Speaker 1: from critical hypoxy and lack of oxygen access. Oxygen access 725 00:41:07,480 --> 00:41:10,879 Speaker 1: in India has been significantly strengthened, but there are other 726 00:41:11,040 --> 00:41:14,760 Speaker 1: policies in place, so their decrease that they're improving border control, 727 00:41:15,320 --> 00:41:19,840 Speaker 1: um improving same day rapid testing prior to travel, and 728 00:41:19,960 --> 00:41:22,520 Speaker 1: all of these innovations will help you know the spread 729 00:41:22,560 --> 00:41:25,280 Speaker 1: of the virus and going to those rural underserved areas. 730 00:41:26,120 --> 00:41:28,800 Speaker 1: One confusion that a lot of people have, myself included, 731 00:41:29,120 --> 00:41:31,840 Speaker 1: is how much less virulent the omicron variant is. We 732 00:41:31,960 --> 00:41:35,440 Speaker 1: don't have concrete data showing that. But the real issue 733 00:41:35,520 --> 00:41:38,360 Speaker 1: here is when does this move from a virus that 734 00:41:38,440 --> 00:41:40,960 Speaker 1: we need to counter and social distance for and mask 735 00:41:41,040 --> 00:41:44,840 Speaker 1: and vaccinate repeatedly, versus a common cold versus something that 736 00:41:44,880 --> 00:41:46,520 Speaker 1: you're going to get every once in a while. It's 737 00:41:46,560 --> 00:41:48,279 Speaker 1: not going to be fun, but you get over it, 738 00:41:48,360 --> 00:41:51,840 Speaker 1: you live, you move on. So I really try to 739 00:41:51,880 --> 00:41:53,920 Speaker 1: think about what does it mean for a virus to 740 00:41:54,000 --> 00:41:57,560 Speaker 1: be endemic? So scientifically, an endemic virus is one that 741 00:41:57,719 --> 00:42:02,719 Speaker 1: has predictable variations, seasonal variations like the common cold, that 742 00:42:02,840 --> 00:42:06,240 Speaker 1: it's impact on the health system is manageable and variable 743 00:42:06,400 --> 00:42:10,279 Speaker 1: and acceptable to society. And the third is is that 744 00:42:10,640 --> 00:42:14,560 Speaker 1: the number of people inviting another person is one and 745 00:42:14,880 --> 00:42:18,120 Speaker 1: we're not there with COVID. We know that these surgeries 746 00:42:18,160 --> 00:42:22,080 Speaker 1: can have catastrophic consequences on the health system. We're already 747 00:42:22,160 --> 00:42:25,160 Speaker 1: seeing in the United States several hospitals claim they have 748 00:42:25,280 --> 00:42:28,480 Speaker 1: no more e D beds, no more ICU beds, um 749 00:42:28,600 --> 00:42:32,040 Speaker 1: and our resources are outstripped. So I think what my 750 00:42:32,120 --> 00:42:35,080 Speaker 1: concern is by calling this endemic, that there will be 751 00:42:35,680 --> 00:42:38,800 Speaker 1: a complacency that will set it, which I think is 752 00:42:38,840 --> 00:42:42,239 Speaker 1: unnecessary because still deaths that need to be avoided in 753 00:42:42,320 --> 00:42:45,359 Speaker 1: our future based on the trajectory of the pandemic. When 754 00:42:45,360 --> 00:42:48,840 Speaker 1: will we get to that point? After ansanti? You know, 755 00:42:48,920 --> 00:42:52,360 Speaker 1: I think as soon. Um we are now expanding vaccines. 756 00:42:52,880 --> 00:42:55,160 Speaker 1: Vaccine uptake has improved in the United States in the 757 00:42:55,239 --> 00:42:59,560 Speaker 1: recent weeks. We are really expecting the youngest in our 758 00:42:59,640 --> 00:43:03,680 Speaker 1: society TV under five to have access to vaccines very soon. 759 00:43:04,200 --> 00:43:07,040 Speaker 1: And as the virus continues to involve, we do think 760 00:43:07,080 --> 00:43:11,280 Speaker 1: we'll transmissibility will increase. The virulence is unlikely to continue 761 00:43:11,280 --> 00:43:15,319 Speaker 1: to increase. So I'm really saying, like next Christmas we'll 762 00:43:15,360 --> 00:43:17,520 Speaker 1: have we will not be having this conversation. I will 763 00:43:17,560 --> 00:43:22,560 Speaker 1: not be on the show, I hope. Oh no, months 764 00:43:22,560 --> 00:43:26,800 Speaker 1: ago we do back to you. We do scientific research 765 00:43:26,920 --> 00:43:30,719 Speaker 1: here in the needle goes when you're on. So no, 766 00:43:30,920 --> 00:43:33,240 Speaker 1: you'll be was we expect you to be talking about 767 00:43:33,280 --> 00:43:37,160 Speaker 1: the two year yield two years back and say of 768 00:43:37,239 --> 00:43:41,560 Speaker 1: Johns Hopkins, thank you so much. Away. This is the 769 00:43:41,600 --> 00:43:46,200 Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays 770 00:43:46,280 --> 00:43:49,680 Speaker 1: from seven to ten am Eastern on Bloomberg Radio and 771 00:43:49,880 --> 00:43:53,640 Speaker 1: on Bloomberg Television each day from six to nine am 772 00:43:54,200 --> 00:43:57,920 Speaker 1: for insight from the best in economics, finance, investment, and 773 00:43:58,040 --> 00:44:04,520 Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, 774 00:44:04,719 --> 00:44:08,279 Speaker 1: Bloomberg dot com, and of course on the terminal. I'm 775 00:44:08,400 --> 00:44:11,000 Speaker 1: Tom keene In. This is Bloomberg