1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:09,240 --> 00:00:13,080 Speaker 1: with Jonathan Ferrill and Lisa Brownwitz jay Leie. We bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment and 4 00:00:17,280 --> 00:00:23,280 Speaker 1: international relations. Find Bloomberg Surveillance and Apple Podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:29,800 Speaker 1: dot Com, and of course on the Bloomberg Termament audience 6 00:00:29,800 --> 00:00:31,920 Speaker 1: worldwide and place to Say on Bloomberg Radio and TV. 7 00:00:32,080 --> 00:00:33,519 Speaker 1: We can now head down to the White House and 8 00:00:33,520 --> 00:00:37,080 Speaker 1: catch up with Jared Bernstein of the Council of Economic Advisors. Jared, 9 00:00:37,080 --> 00:00:38,720 Speaker 1: it's always good to catch up, sir, Thank you for 10 00:00:38,760 --> 00:00:41,000 Speaker 1: being with us. Let's just start here with a question 11 00:00:41,080 --> 00:00:43,199 Speaker 1: that I think a lot of people will be wandering. 12 00:00:43,560 --> 00:00:47,159 Speaker 1: Really solid payrolls report. The outlook is brighter, the vaccine 13 00:00:47,159 --> 00:00:49,920 Speaker 1: time table. You guys have accelerated it. Why on earth 14 00:00:49,920 --> 00:00:54,280 Speaker 1: do we need a one point nine trillion dollar bill. 15 00:00:54,320 --> 00:00:56,240 Speaker 1: First of all, it's great to see you too, Always 16 00:00:56,320 --> 00:00:59,440 Speaker 1: enjoy catching up. Look, I think we need to get 17 00:00:59,520 --> 00:01:02,080 Speaker 1: under the hood of this job report in a second. 18 00:01:02,080 --> 00:01:06,399 Speaker 1: We're always happy to see more people get more jobs, 19 00:01:06,600 --> 00:01:08,360 Speaker 1: but let's take a breath here and look at the 20 00:01:08,400 --> 00:01:12,080 Speaker 1: bigger picture. This job market is still down nine and 21 00:01:12,120 --> 00:01:15,360 Speaker 1: a half million jobs from a year ago. That's actually 22 00:01:15,440 --> 00:01:18,679 Speaker 1: eight hundred thousand jobs worse than the lowest point of 23 00:01:18,680 --> 00:01:22,080 Speaker 1: the Great Recession. We learned today that the black unemployment 24 00:01:22,160 --> 00:01:25,800 Speaker 1: rate is just below ten P nine point nine P 25 00:01:26,760 --> 00:01:31,200 Speaker 1: sixty nine thousand educator jobs down. That's a million over 26 00:01:31,240 --> 00:01:34,440 Speaker 1: the past year. Our state local help from the American 27 00:01:34,480 --> 00:01:38,080 Speaker 1: Rescue Plan directly targets that problem. So there is a 28 00:01:38,160 --> 00:01:41,520 Speaker 1: lot of economic pain out there and that hasn't changed 29 00:01:41,560 --> 00:01:44,480 Speaker 1: because of this one print, especially by the way, a 30 00:01:44,560 --> 00:01:48,200 Speaker 1: print that was driven. Uh of those gains come from 31 00:01:48,240 --> 00:01:51,480 Speaker 1: the very volatile leisure and hospitality sector, a sector that 32 00:01:51,560 --> 00:01:54,639 Speaker 1: a couple of months ago shed half a million jobs. 33 00:01:54,800 --> 00:01:56,760 Speaker 1: So let's get under the hood, let's take a breath, 34 00:01:56,920 --> 00:02:00,360 Speaker 1: and let's recognize that many, many Americans are still in 35 00:02:00,400 --> 00:02:03,160 Speaker 1: the throes of this crisis and need to help delivered 36 00:02:03,160 --> 00:02:05,280 Speaker 1: by the American Rescue Plans. So, charge, what do you 37 00:02:05,320 --> 00:02:07,640 Speaker 1: think that that argument that you've just illustrates it quite 38 00:02:07,640 --> 00:02:13,840 Speaker 1: perfectly is not resonating with prominent democratic economists. Uh, In fact, 39 00:02:13,880 --> 00:02:16,359 Speaker 1: that not only is it resonating with economists on both 40 00:02:16,360 --> 00:02:19,600 Speaker 1: sides of the aisle, it's massively resonating with the American people, 41 00:02:19,600 --> 00:02:21,799 Speaker 1: which I would argue are the most important group here, 42 00:02:22,000 --> 00:02:24,600 Speaker 1: even if I argue, even if I'm neglecting my own 43 00:02:24,600 --> 00:02:28,880 Speaker 1: profession of it. Here we're talking about approval rates for 44 00:02:28,919 --> 00:02:32,000 Speaker 1: this plan that are north of se I just saw 45 00:02:32,040 --> 00:02:34,880 Speaker 1: a number that was seventy five or seventy six, and 46 00:02:34,880 --> 00:02:38,280 Speaker 1: and and bipartisan. By the way, you know this word partisanship, 47 00:02:38,320 --> 00:02:40,760 Speaker 1: it means something different in Washington than in the rest 48 00:02:40,760 --> 00:02:43,000 Speaker 1: of the country. This is a plan that, whether you're 49 00:02:43,000 --> 00:02:45,160 Speaker 1: a deed or an r you want to see the 50 00:02:45,200 --> 00:02:49,040 Speaker 1: schools open. That simply doesn't happen in a timely fashion 51 00:02:49,120 --> 00:02:52,880 Speaker 1: that's acceptable to this president without the American Rescue Plan, 52 00:02:53,240 --> 00:02:57,120 Speaker 1: distribution of the vaccine, getting shots and arms as I mentioned, 53 00:02:57,160 --> 00:03:01,239 Speaker 1: schools providing checks, relief, unemployment an insurance by the way, 54 00:03:01,320 --> 00:03:05,280 Speaker 1: unemployment benefits that expire in something like eleven or twelve days. 55 00:03:05,280 --> 00:03:08,280 Speaker 1: Without the American Rescue Plan. The urgency of this plan 56 00:03:08,639 --> 00:03:11,000 Speaker 1: is just as as big as it was yesterday, and 57 00:03:11,040 --> 00:03:13,320 Speaker 1: the American people know that. Jared, Let's pick up on that, 58 00:03:13,400 --> 00:03:15,520 Speaker 1: because in many ways, yes, that is true, but also 59 00:03:15,560 --> 00:03:17,760 Speaker 1: you are stating the obvious. If I was getting sent 60 00:03:17,840 --> 00:03:20,320 Speaker 1: a four hundred dollar check by you, and I was surveyed, 61 00:03:20,720 --> 00:03:22,840 Speaker 1: I'd be approving it as well. No wonder there is 62 00:03:22,880 --> 00:03:25,280 Speaker 1: a high approval rate on the economist on the democratic 63 00:03:25,280 --> 00:03:29,080 Speaker 1: economist Larry Summers, former Treasury secretary, raising questions about this, 64 00:03:29,120 --> 00:03:32,080 Speaker 1: Olivier Blanchard raising questions about this. And I have an 65 00:03:32,080 --> 00:03:35,360 Speaker 1: economist after economist on this program with me, raising the 66 00:03:35,520 --> 00:03:38,480 Speaker 1: very same questions. Did the matter? And then let me 67 00:03:38,480 --> 00:03:40,120 Speaker 1: just finish the question, Jared, let me just fit Quinnis 68 00:03:40,320 --> 00:03:43,720 Speaker 1: finish the question quickly. You've said the electorate matters, and 69 00:03:43,760 --> 00:03:46,600 Speaker 1: of course they approved this. If you've lost the argument 70 00:03:46,600 --> 00:03:50,760 Speaker 1: in financial circles and in markets, does that matter at all? Well, 71 00:03:50,800 --> 00:03:55,400 Speaker 1: first of all, the objection from Larry, for example, who 72 00:03:55,440 --> 00:03:57,840 Speaker 1: is a good old friend of mine, to whom I 73 00:03:57,880 --> 00:03:59,680 Speaker 1: try to catch up with as often as I can, 74 00:03:59,680 --> 00:04:02,360 Speaker 1: and we'd us agree on this heating point. If you 75 00:04:02,400 --> 00:04:05,400 Speaker 1: read what Larry is saying at all carefully, he is 76 00:04:05,520 --> 00:04:09,440 Speaker 1: absolutely agreeing of the need for relief, the need to 77 00:04:09,560 --> 00:04:12,600 Speaker 1: finally hit this virus with the knockout punch that is 78 00:04:12,640 --> 00:04:15,600 Speaker 1: here tofore alluded it, and finally get us to the 79 00:04:15,640 --> 00:04:18,719 Speaker 1: other side of this crisis so we can launch a 80 00:04:18,839 --> 00:04:23,480 Speaker 1: robust reliable and racially inclusive recovery. So there is definitely 81 00:04:23,600 --> 00:04:26,360 Speaker 1: arguments about this heating question, and that has a lot 82 00:04:26,440 --> 00:04:29,400 Speaker 1: to do more with the size of the output gap 83 00:04:29,480 --> 00:04:32,200 Speaker 1: and the speed of the spend out and whether people 84 00:04:32,240 --> 00:04:34,960 Speaker 1: are gonna save or spend. And those are nuanced arguments 85 00:04:34,960 --> 00:04:37,719 Speaker 1: that I'm happy to get into. But in fact, you know, 86 00:04:38,160 --> 00:04:41,680 Speaker 1: there are very few economists who disagree with the need 87 00:04:41,720 --> 00:04:44,520 Speaker 1: for this plan. There's argument around the edges. Now you 88 00:04:44,640 --> 00:04:47,320 Speaker 1: set a second ago, you know the people like it. Well, 89 00:04:47,720 --> 00:04:52,159 Speaker 1: sometimes if the public you know, north of approve of 90 00:04:52,200 --> 00:04:55,080 Speaker 1: a plan, that actually means it's a good plan. You 91 00:04:55,080 --> 00:04:57,559 Speaker 1: don't have to hope forthink it, especially in a period 92 00:04:57,560 --> 00:05:00,960 Speaker 1: where we're nine point five million jobs own from where 93 00:05:00,960 --> 00:05:02,839 Speaker 1: we were a year ago. If you were telling me 94 00:05:02,880 --> 00:05:05,000 Speaker 1: we were at full employment, we'd be having a much 95 00:05:05,000 --> 00:05:08,320 Speaker 1: different discussion. The black unemployment it is almost ten percent. 96 00:05:08,640 --> 00:05:11,680 Speaker 1: So the urgency of this plan is recognized by the 97 00:05:11,680 --> 00:05:13,480 Speaker 1: American and people in a way that we should pay 98 00:05:13,480 --> 00:05:15,640 Speaker 1: attention to jam. There's a need for a relief. Everyone 99 00:05:15,640 --> 00:05:17,520 Speaker 1: agrees with that. I don't disagree with you not had 100 00:05:17,640 --> 00:05:20,200 Speaker 1: hit to advocate a separate argument. It's about the composition 101 00:05:20,240 --> 00:05:22,560 Speaker 1: of this plan, And more importantly, for a lot of people, 102 00:05:22,880 --> 00:05:24,599 Speaker 1: it's about the size and you know that, and the 103 00:05:24,640 --> 00:05:27,960 Speaker 1: size is absolutely massive. Secondary Summers, who comes on bloom Bug, 104 00:05:28,040 --> 00:05:30,000 Speaker 1: has talked about this repeatedly as well. The worriors you 105 00:05:30,040 --> 00:05:32,120 Speaker 1: know is this takes all the oxygen out of the 106 00:05:32,160 --> 00:05:35,080 Speaker 1: room to secure an infrastructure plan down the road, to 107 00:05:35,160 --> 00:05:38,960 Speaker 1: secure public investment. And you'll be overwhelmed if we do overheat. 108 00:05:39,200 --> 00:05:42,360 Speaker 1: What gives you the confidence, what gives you the confidence 109 00:05:42,400 --> 00:05:46,480 Speaker 1: that we won't overheat? That this isn't big enough? Great question, 110 00:05:46,520 --> 00:05:48,039 Speaker 1: So I'm gonna get to that. Let me just first 111 00:05:48,040 --> 00:05:51,400 Speaker 1: slow address this targeting point. There are elements of this 112 00:05:51,440 --> 00:05:54,840 Speaker 1: plan that reduced child poverty by fifty that would be 113 00:05:54,880 --> 00:05:57,720 Speaker 1: a massive success at a time when low income families, 114 00:05:57,920 --> 00:06:00,799 Speaker 1: many of whom are essential workers, are under trum mendous pressure. 115 00:06:01,400 --> 00:06:04,800 Speaker 1: This plan targets state and local government, said, as I 116 00:06:04,839 --> 00:06:07,800 Speaker 1: just told you, have shed one point four million jobs, 117 00:06:07,880 --> 00:06:11,880 Speaker 1: one million of those jobs in education. Now heating versus overheating. 118 00:06:11,960 --> 00:06:14,760 Speaker 1: Let me be very clear, nobody is saying that the 119 00:06:14,839 --> 00:06:17,880 Speaker 1: risks of economic heat are zero. In fact, we've already 120 00:06:18,160 --> 00:06:20,600 Speaker 1: seen and you've reported on some of the heat that's 121 00:06:20,640 --> 00:06:23,840 Speaker 1: generated by expectations. There's plan heat that I, by the way, 122 00:06:23,960 --> 00:06:27,719 Speaker 1: would consider vitally important to an economy that's experienced much 123 00:06:27,720 --> 00:06:31,080 Speaker 1: more deflation than than inflation in recent years. Why am 124 00:06:31,080 --> 00:06:35,560 Speaker 1: I confidence against overheating? Well, for one, the output gap 125 00:06:35,640 --> 00:06:38,479 Speaker 1: is much larger than many economists assume it is. And 126 00:06:38,520 --> 00:06:40,120 Speaker 1: if you if you look at some of the works 127 00:06:40,120 --> 00:06:42,320 Speaker 1: safe from Goldman Sacks, you'll find an output gap that's 128 00:06:42,360 --> 00:06:45,040 Speaker 1: twice as large as some of the sort of inflation 129 00:06:45,080 --> 00:06:49,440 Speaker 1: Eastas are saying. Secondly, the spend out is considerably slower 130 00:06:49,560 --> 00:06:52,040 Speaker 1: than some folks believe. That is, according to the Corressional 131 00:06:52,040 --> 00:06:54,560 Speaker 1: Budget Office, this does not spend out in one year. 132 00:06:54,760 --> 00:06:57,680 Speaker 1: It spends out in two years. And that's important both 133 00:06:57,720 --> 00:07:00,839 Speaker 1: in terms of making sure the fiscal impulse is lasting, 134 00:07:01,120 --> 00:07:03,960 Speaker 1: and making and and and and putting down overheating risks. Now, 135 00:07:04,000 --> 00:07:06,839 Speaker 1: to be very clear about this, people will start getting 136 00:07:06,960 --> 00:07:11,640 Speaker 1: checks very quickly, people will get unemployment insurance benefits very quickly. 137 00:07:11,880 --> 00:07:14,040 Speaker 1: But some of the longer term plan parts of the 138 00:07:14,080 --> 00:07:18,920 Speaker 1: plan spend out more slowly. Finally, some folks are going 139 00:07:18,960 --> 00:07:22,440 Speaker 1: to initially save some of these resources. That translates into 140 00:07:22,440 --> 00:07:26,600 Speaker 1: a lower multiplier and less inflation. Is that a problem. No, 141 00:07:26,800 --> 00:07:29,240 Speaker 1: I think it's actually a feature, not a bug, because 142 00:07:29,240 --> 00:07:33,119 Speaker 1: in times of great pandemic induced uncertainty, families who usually 143 00:07:33,200 --> 00:07:36,600 Speaker 1: have negative or lower or zero savings rates need that 144 00:07:36,680 --> 00:07:39,200 Speaker 1: kind of a cushion to help deal with the air 145 00:07:39,240 --> 00:07:41,440 Speaker 1: pockets that they face over the terms of this crisis. 146 00:07:41,760 --> 00:07:44,440 Speaker 1: That final point there is the difference between relief and stimulus. 147 00:07:44,520 --> 00:07:47,080 Speaker 1: What those checks get used for. And even I've spoken 148 00:07:47,080 --> 00:07:49,120 Speaker 1: before and you've said it's relief and it's not stimulus. 149 00:07:49,160 --> 00:07:51,160 Speaker 1: So help me understand this just a little bit better. 150 00:07:51,560 --> 00:07:54,880 Speaker 1: How do you calibrate who those checks go to based 151 00:07:54,880 --> 00:07:56,720 Speaker 1: on where the need is and what the money is 152 00:07:56,840 --> 00:07:58,320 Speaker 1: used for? And why did you come up with a 153 00:07:58,400 --> 00:08:02,400 Speaker 1: number at say seventy and yeah, so first of all, 154 00:08:02,480 --> 00:08:06,040 Speaker 1: let's let I think listeners may sometimes reasonably be confused, 155 00:08:06,040 --> 00:08:07,760 Speaker 1: what do you mean relief? What do you mean stimulus? Well, 156 00:08:08,000 --> 00:08:11,160 Speaker 1: so oftentimes stimulus is designed to get people back into 157 00:08:11,200 --> 00:08:13,520 Speaker 1: the labor force as quickly as possible, to spend out 158 00:08:13,880 --> 00:08:16,880 Speaker 1: UH and have higher multipliers on the kinds of of 159 00:08:16,920 --> 00:08:20,160 Speaker 1: resources that we're providing, and definitely a lot of that 160 00:08:20,240 --> 00:08:24,240 Speaker 1: will happen are anti eviction resources in the in the 161 00:08:24,280 --> 00:08:26,680 Speaker 1: rescue plan get to people right away and help them 162 00:08:26,880 --> 00:08:29,800 Speaker 1: cut down some of that debt that they've been accumulating 163 00:08:29,800 --> 00:08:32,920 Speaker 1: for from rent. But others we've found when we've when 164 00:08:32,960 --> 00:08:36,520 Speaker 1: we've seen past examples of this, initially save these resources 165 00:08:36,559 --> 00:08:38,720 Speaker 1: because they can't go out and spend them as quickly 166 00:08:38,760 --> 00:08:40,880 Speaker 1: as they want, and then when they hit an air 167 00:08:40,880 --> 00:08:44,040 Speaker 1: pocket in their personal economies, that's when they spend. So 168 00:08:44,120 --> 00:08:47,120 Speaker 1: having this cushion, this relief cushion, is essential to them. 169 00:08:47,360 --> 00:08:50,360 Speaker 1: In terms of the targeting of the checks. Congress recently 170 00:08:50,440 --> 00:08:52,960 Speaker 1: ratcheted down the high end of the phase out of 171 00:08:52,960 --> 00:08:55,600 Speaker 1: those checks, so they phase out sooner. But there's no 172 00:08:55,720 --> 00:08:57,959 Speaker 1: question if you actually look at the kinds of burdens 173 00:08:57,960 --> 00:08:59,640 Speaker 1: that people face, if you look at some of the 174 00:08:59,679 --> 00:09:02,440 Speaker 1: low aiming rights that they went into, that a single 175 00:09:02,480 --> 00:09:06,520 Speaker 1: family with seventy k is facing hardship in this economy 176 00:09:06,640 --> 00:09:10,079 Speaker 1: and they need those direct income income payments just as 177 00:09:10,120 --> 00:09:12,800 Speaker 1: much as some of the well targeted That's just as 178 00:09:12,880 --> 00:09:15,000 Speaker 1: much as some of the more directly targeted to the 179 00:09:15,040 --> 00:09:17,960 Speaker 1: poor payments that I mentioned a minute ago, helping to 180 00:09:17,960 --> 00:09:20,520 Speaker 1: cut child poverty by fifty percent. Jared, I hear you're 181 00:09:20,520 --> 00:09:22,679 Speaker 1: fighting for this, and I know you're passionate about it. 182 00:09:23,040 --> 00:09:25,600 Speaker 1: What it don't here is the same passionate fight around 183 00:09:25,600 --> 00:09:27,920 Speaker 1: a high minimum white. And many people might sit here 184 00:09:27,960 --> 00:09:30,000 Speaker 1: and ask the question, why don't you're fighting hard enough 185 00:09:30,040 --> 00:09:31,599 Speaker 1: for it? Why don't you fight hard and want you 186 00:09:31,640 --> 00:09:34,120 Speaker 1: to go shedding? Wann't you willing to give something up 187 00:09:34,160 --> 00:09:37,840 Speaker 1: to secure it? What's happening? Uh? You know now that 188 00:09:37,880 --> 00:09:40,360 Speaker 1: you've raised the minimum wage. Let me tell you that 189 00:09:40,400 --> 00:09:43,600 Speaker 1: I have been fighting for that policy, uh, for my 190 00:09:43,640 --> 00:09:46,680 Speaker 1: whole career, which last too many, too many decades for 191 00:09:46,679 --> 00:09:49,480 Speaker 1: me to get into. And the President of the United States, 192 00:09:49,480 --> 00:09:52,240 Speaker 1: far more importantly than me, has been fighting for this 193 00:09:52,360 --> 00:09:54,600 Speaker 1: ever since the campaign. And I want to tell you 194 00:09:54,679 --> 00:09:57,240 Speaker 1: right here on Bloomberg TV that he is not going 195 00:09:57,320 --> 00:10:00,560 Speaker 1: to stop fighting for that. He is committed to fifteen 196 00:10:00,600 --> 00:10:03,920 Speaker 1: dollar in our minimum wage, phasing in over a few years. 197 00:10:04,200 --> 00:10:06,200 Speaker 1: He's going to continue to fight for that. And the 198 00:10:06,240 --> 00:10:09,360 Speaker 1: people who say that that's somehow unrelated to, uh, to 199 00:10:09,400 --> 00:10:11,200 Speaker 1: what's going on in the country, I think are just 200 00:10:11,320 --> 00:10:14,920 Speaker 1: missing the boat. You've got millions of low paid essential 201 00:10:14,960 --> 00:10:18,280 Speaker 1: workers working away, toiling away at a minimum wage that 202 00:10:18,360 --> 00:10:20,480 Speaker 1: said it's seven dollars and twenty five cents an hour. 203 00:10:20,840 --> 00:10:23,120 Speaker 1: Now if anybody who can hear my voice thinks that's 204 00:10:23,120 --> 00:10:25,920 Speaker 1: that that's an adequate wage for you've got an argument 205 00:10:25,960 --> 00:10:28,560 Speaker 1: with myself and the President of the United States. Because 206 00:10:28,880 --> 00:10:31,480 Speaker 1: we believe that minimum wage should be raised. We need 207 00:10:31,520 --> 00:10:33,640 Speaker 1: to figure out how to get from here to there. 208 00:10:33,880 --> 00:10:37,079 Speaker 1: And trust me, that is going to be an ongoing 209 00:10:37,080 --> 00:10:39,200 Speaker 1: focus of this. Why let's finish there on that road. 210 00:10:39,520 --> 00:10:41,520 Speaker 1: Last time around there was a willingness to draw taxes 211 00:10:41,520 --> 00:10:44,440 Speaker 1: own companies to face this in Can we do that again? 212 00:10:45,440 --> 00:10:47,320 Speaker 1: You know this is neither the time nor place for 213 00:10:47,320 --> 00:10:50,400 Speaker 1: that negotiation. But you are right that historically those kinds 214 00:10:50,440 --> 00:10:52,600 Speaker 1: of things have been paired. I think there are many 215 00:10:52,720 --> 00:10:54,800 Speaker 1: variations that we're gonna have to work with Congress to 216 00:10:54,840 --> 00:10:57,240 Speaker 1: get from here. To understand you, what with me? Are 217 00:10:57,280 --> 00:10:59,120 Speaker 1: you willing to negotiate with them on that point? And 218 00:10:59,160 --> 00:11:02,800 Speaker 1: are you I'm really here for the economic analysis. The 219 00:11:02,880 --> 00:11:05,400 Speaker 1: negotiators are a different group of people. What I'm here 220 00:11:05,440 --> 00:11:08,080 Speaker 1: to tell you is that this nation can get to 221 00:11:08,160 --> 00:11:11,720 Speaker 1: fifteen dollars an hour UH in UH in a phase 222 00:11:11,760 --> 00:11:15,400 Speaker 1: out range and provide much needed relief to people. It's 223 00:11:15,440 --> 00:11:19,040 Speaker 1: a simple plan that that has the intended consequences of 224 00:11:19,160 --> 00:11:22,280 Speaker 1: raising the pay of low wage workers without having distortionary 225 00:11:22,320 --> 00:11:24,640 Speaker 1: effects on the other side. So full speed ahead on 226 00:11:24,640 --> 00:11:27,200 Speaker 1: the minimum wage. Let's catch up saying it's gonna see 227 00:11:27,400 --> 00:11:37,320 Speaker 1: John Best the Council of Economic Advisors, thank you right 228 00:11:37,360 --> 00:11:39,400 Speaker 1: now joining us. And this is the perfect guest to 229 00:11:39,440 --> 00:11:42,880 Speaker 1: start on radio and TV. Sevida Supermannian is a Bank 230 00:11:42,920 --> 00:11:46,280 Speaker 1: of America. She has bulletproof skill sets out of Berkeley 231 00:11:46,360 --> 00:11:51,720 Speaker 1: and mathematics and philosophy as well. Forget about the mathematics, Sevina, 232 00:11:51,880 --> 00:11:55,600 Speaker 1: this is a nuts job's day. Give us the equity 233 00:11:55,640 --> 00:12:01,880 Speaker 1: philosophy of Supermania in this morning philosophy. You know, I 234 00:12:01,920 --> 00:12:04,640 Speaker 1: think it's simple. I think that we saw a very 235 00:12:04,720 --> 00:12:08,079 Speaker 1: strong run up in the market last year anticipating and 236 00:12:08,200 --> 00:12:11,760 Speaker 1: economic recovery and earnings recovery. And this year we're not 237 00:12:11,800 --> 00:12:14,920 Speaker 1: going to get much more on the multiple expansion side, 238 00:12:14,960 --> 00:12:17,080 Speaker 1: but we are going to get the earnings. And that's 239 00:12:17,120 --> 00:12:19,120 Speaker 1: where I think, well, that's what we need to watch 240 00:12:19,160 --> 00:12:22,360 Speaker 1: this year is how strong earnings actually come in. I mean, 241 00:12:22,360 --> 00:12:26,440 Speaker 1: we're penciling in something close to earnings growth, but if 242 00:12:26,440 --> 00:12:29,160 Speaker 1: we see anything short of that, yeah, I mean it's 243 00:12:29,200 --> 00:12:31,800 Speaker 1: a it's a blockbuster number for earnings, but I think 244 00:12:31,800 --> 00:12:35,440 Speaker 1: what's fascinating is that the market multiple expanded even more 245 00:12:35,480 --> 00:12:37,880 Speaker 1: than that last year. And you know, Tom, this is 246 00:12:37,960 --> 00:12:40,800 Speaker 1: kind of typical. I mean, the market generally anticipates the 247 00:12:40,840 --> 00:12:43,720 Speaker 1: good news before it happens. And now what I worry 248 00:12:43,720 --> 00:12:46,000 Speaker 1: about is that the bulk of news we're gonna get 249 00:12:46,120 --> 00:12:48,640 Speaker 1: is going to be less good and it's more about 250 00:12:48,679 --> 00:12:53,000 Speaker 1: you know, kind of uh inklings of inflationary pressure on margins. 251 00:12:53,120 --> 00:12:55,520 Speaker 1: Do companies have the pricing power to pass this on 252 00:12:55,559 --> 00:12:59,120 Speaker 1: to consumers? That I think is to be determined. So 253 00:12:59,120 --> 00:13:00,640 Speaker 1: so I think this is going to be really kind 254 00:13:00,640 --> 00:13:03,920 Speaker 1: of a show me year in terms of earnings growth, um, 255 00:13:03,960 --> 00:13:06,640 Speaker 1: you know, in terms of the fundamentals actually supporting a 256 00:13:06,760 --> 00:13:09,600 Speaker 1: fairly lofty multiple on the SMP five hundred right now. 257 00:13:09,640 --> 00:13:11,760 Speaker 1: So I just build on that. Why we're so challenged 258 00:13:11,760 --> 00:13:14,040 Speaker 1: on the SMP five hundred at the index level. You 259 00:13:14,080 --> 00:13:16,040 Speaker 1: have the year end price target I think thirty eight 260 00:13:16,120 --> 00:13:19,040 Speaker 1: hundred thirty seven right now in future is why are 261 00:13:19,120 --> 00:13:22,560 Speaker 1: we sub challenged at the headline? Yeah, I think it's 262 00:13:22,640 --> 00:13:25,520 Speaker 1: because of the constitution of the market, and we've talked 263 00:13:25,520 --> 00:13:28,079 Speaker 1: about this a lot on your show. I think the 264 00:13:28,200 --> 00:13:31,480 Speaker 1: SMP five hundred is not a proxy for the US economy. 265 00:13:31,480 --> 00:13:36,960 Speaker 1: It's a proxy for low interest rates, disinflationary pressure, secular growth. 266 00:13:37,040 --> 00:13:40,240 Speaker 1: It's much more defensively tilted than any other index you 267 00:13:40,240 --> 00:13:42,720 Speaker 1: can look at. So I think the real risks this 268 00:13:42,800 --> 00:13:44,440 Speaker 1: year are going to be in the SMP and even 269 00:13:44,480 --> 00:13:47,959 Speaker 1: more so than NASDACK. But small caps, you know, value 270 00:13:48,000 --> 00:13:50,920 Speaker 1: stocks should still do okay as long as the economic 271 00:13:50,960 --> 00:13:54,679 Speaker 1: recovery remains intact. I do worry as we approached the 272 00:13:54,760 --> 00:13:56,719 Speaker 1: end of the year that the news is going to 273 00:13:56,840 --> 00:13:59,199 Speaker 1: go from you know, kind of pretty good to to 274 00:13:59,440 --> 00:14:02,120 Speaker 1: more negative. And I think what we start to hear 275 00:14:02,160 --> 00:14:06,160 Speaker 1: about is how to fund this this big fiscal stimulus program. 276 00:14:06,200 --> 00:14:10,400 Speaker 1: Maybe we start to hear more rumblings around tats hikes, um, 277 00:14:10,440 --> 00:14:12,240 Speaker 1: you know, I don't you know, in terms of the taper, 278 00:14:12,280 --> 00:14:14,880 Speaker 1: I don't think if the Fed starts talking about tapering 279 00:14:14,920 --> 00:14:17,560 Speaker 1: their their assets purchase program, I think that will be 280 00:14:17,600 --> 00:14:20,000 Speaker 1: negative for risk assets. So those are the factors to 281 00:14:20,080 --> 00:14:22,400 Speaker 1: watch as we as we progress forward in the year. 282 00:14:22,680 --> 00:14:25,440 Speaker 1: But I think what we're watching now is just earnings. 283 00:14:25,520 --> 00:14:28,440 Speaker 1: If inflationary pressure is enough to actually take a dent 284 00:14:28,560 --> 00:14:31,040 Speaker 1: out of earnings, that would be negative. But if companies 285 00:14:31,040 --> 00:14:33,320 Speaker 1: actually get pricing power that I think is the big 286 00:14:33,360 --> 00:14:35,840 Speaker 1: positive here. As you speak, I think about sort of 287 00:14:35,840 --> 00:14:37,520 Speaker 1: a double way at me of risks. We've had a 288 00:14:37,520 --> 00:14:40,280 Speaker 1: lot of investors come on this show and say that 289 00:14:40,400 --> 00:14:44,240 Speaker 1: yields have not responded to the positive sentiment that we've 290 00:14:44,240 --> 00:14:47,200 Speaker 1: seen in equities. Right, they haven't baked in that earnings 291 00:14:47,240 --> 00:14:51,320 Speaker 1: growth of that you're talking about. Now, those yields are 292 00:14:51,480 --> 00:14:54,280 Speaker 1: those are starting to They're creeping up at the same 293 00:14:54,400 --> 00:14:57,600 Speaker 1: gimatically that stocks have already priced those in. And our 294 00:14:57,680 --> 00:15:00,640 Speaker 1: price to perfection and our subject to disappointment. How do 295 00:15:00,720 --> 00:15:03,320 Speaker 1: you walk through those double whammys, the idea that yields 296 00:15:03,320 --> 00:15:06,280 Speaker 1: could rise hitting the relative valuation of stocks at the 297 00:15:06,400 --> 00:15:12,000 Speaker 1: same time that we're still getting disappointments with respect to earnings. Yeah. Absolutely, 298 00:15:12,040 --> 00:15:14,720 Speaker 1: I think that's the way to think about investing this 299 00:15:14,800 --> 00:15:19,760 Speaker 1: year is inflation protected yield and I think they're What 300 00:15:19,880 --> 00:15:22,200 Speaker 1: you want to do is look for dividend growth stocks. 301 00:15:22,240 --> 00:15:25,000 Speaker 1: This is one of the reasons I like financials. Financials 302 00:15:25,040 --> 00:15:30,040 Speaker 1: offers relatively inflation protected dividend yield and cash return. Financials 303 00:15:30,080 --> 00:15:33,880 Speaker 1: participates in economic recoveries, has a low payout ratio, has 304 00:15:33,960 --> 00:15:36,960 Speaker 1: room to raise dividends, UM other stocks like that in 305 00:15:37,040 --> 00:15:40,320 Speaker 1: the consumer sectors and industrials. I think that's the way 306 00:15:40,320 --> 00:15:43,800 Speaker 1: to play the year. Don't get too fancy, um, you know, 307 00:15:43,880 --> 00:15:47,800 Speaker 1: look for cheap inflation protected dividend field because we've already 308 00:15:47,840 --> 00:15:49,600 Speaker 1: seen a run up in a lot of the low 309 00:15:49,680 --> 00:15:52,600 Speaker 1: quality recovery place. Now, I think it gets a little 310 00:15:52,640 --> 00:15:54,800 Speaker 1: bit more difficult in terms of how to how to 311 00:15:54,840 --> 00:15:59,760 Speaker 1: position your portfolio. I do think go ahead, it's likely 312 00:16:00,000 --> 00:16:03,960 Speaker 1: I'm gonna interrupt, Sevina. Tell me about revenue growth stocks. 313 00:16:04,360 --> 00:16:06,440 Speaker 1: I mean, I get the yearnings growth stocks, I get 314 00:16:06,440 --> 00:16:10,160 Speaker 1: the cash flow the dividend outed out of everybody's talking, 315 00:16:10,240 --> 00:16:14,240 Speaker 1: including Ethan Harris and Michelle about you know, a bigger, bigger, 316 00:16:14,320 --> 00:16:17,360 Speaker 1: bigger economy. Am I right that I learned in my 317 00:16:17,440 --> 00:16:22,960 Speaker 1: philosophy a Supermannian that means revenue growth matters well, revenue 318 00:16:22,960 --> 00:16:25,360 Speaker 1: growth and free cash flow growth. Yeah. I think that's 319 00:16:25,400 --> 00:16:28,080 Speaker 1: absolutely right. So we're moving from just a price to 320 00:16:28,240 --> 00:16:32,440 Speaker 1: book driven you know, by the cheapest stocks on on anything, 321 00:16:32,800 --> 00:16:34,720 Speaker 1: to an environment where, like you said, you want to 322 00:16:34,760 --> 00:16:37,800 Speaker 1: see the revenue growers. And I think what's really interesting 323 00:16:37,840 --> 00:16:40,560 Speaker 1: this year is that we are seeing a market change 324 00:16:40,920 --> 00:16:44,280 Speaker 1: in the sales acceleration stories. And it's it's an obvious point, 325 00:16:44,400 --> 00:16:46,600 Speaker 1: but you know, last year was a very different market. 326 00:16:46,600 --> 00:16:49,360 Speaker 1: We had tech as the real revenue growth the stable, 327 00:16:49,560 --> 00:16:53,440 Speaker 1: stable revenue growth stories. This year we're seeing revenue growth 328 00:16:53,440 --> 00:16:57,080 Speaker 1: expectations in very different pockets of the market, and consumer 329 00:16:57,160 --> 00:17:00,600 Speaker 1: services sectors and industrials and cape s been a fish yaries. 330 00:17:00,800 --> 00:17:02,720 Speaker 1: So I think that's going to be the pivot is 331 00:17:02,800 --> 00:17:06,040 Speaker 1: moving from a growth and a tech dominated market under 332 00:17:06,040 --> 00:17:08,480 Speaker 1: this stay at home environment that we've been in to 333 00:17:08,600 --> 00:17:11,520 Speaker 1: a reopening play where you know, some of these smaller, 334 00:17:11,600 --> 00:17:15,720 Speaker 1: more beaten down cyclical companies really have that revenue acceleration 335 00:17:15,760 --> 00:17:18,640 Speaker 1: that's going to drive drive their their stock prices further 336 00:17:18,720 --> 00:17:24,480 Speaker 1: from here. And interestingly, Energy this way up thirty three 337 00:17:24,840 --> 00:17:27,520 Speaker 1: year today, how stretched do you think that story is? Look, 338 00:17:27,600 --> 00:17:29,879 Speaker 1: I think energy is still a buy and the reason 339 00:17:30,040 --> 00:17:33,040 Speaker 1: is that if you look at positioning and valuations, they 340 00:17:33,119 --> 00:17:37,120 Speaker 1: still suggest that your long only institutional fund managers are 341 00:17:37,240 --> 00:17:40,960 Speaker 1: not necessarily moving to even an equal weight position. The 342 00:17:41,040 --> 00:17:44,600 Speaker 1: world is still very very underweight energy. And if the 343 00:17:44,720 --> 00:17:47,960 Speaker 1: FED is willing to accommodate inflation for a longer period 344 00:17:48,000 --> 00:17:49,720 Speaker 1: of time, and we're going to be in this late 345 00:17:49,800 --> 00:17:52,600 Speaker 1: cycle type of market for a longer period of time 346 00:17:52,640 --> 00:17:55,119 Speaker 1: than is normal. Energy is one of the best ways 347 00:17:55,160 --> 00:17:57,960 Speaker 1: to hedge against inflation. So I think the sector is 348 00:17:58,000 --> 00:17:59,600 Speaker 1: still a buy until we get to a point where 349 00:17:59,600 --> 00:18:01,919 Speaker 1: it looks a lot more expensive and the world has 350 00:18:02,000 --> 00:18:05,040 Speaker 1: gotten there Sevida, we were just talking to pre amr 351 00:18:05,119 --> 00:18:07,680 Speaker 1: Over at TV Securities. She predicts a two percent treasury 352 00:18:07,760 --> 00:18:10,159 Speaker 1: yields if we get there. How much more downside is 353 00:18:10,200 --> 00:18:13,199 Speaker 1: there on big tech stocks? Yeah, No, I know, pre 354 00:18:13,320 --> 00:18:16,159 Speaker 1: and I think two percent is achievable. Um, So you know, 355 00:18:16,240 --> 00:18:20,280 Speaker 1: I think the downside to big tech is as potentially, um, 356 00:18:20,560 --> 00:18:22,960 Speaker 1: you know, akin to what we've seen already. I think 357 00:18:22,960 --> 00:18:25,200 Speaker 1: about it. We've seen a pretty dramatic move in rates. 358 00:18:25,240 --> 00:18:28,160 Speaker 1: We've seen tech sel up. Expect kind of another leg 359 00:18:28,240 --> 00:18:31,080 Speaker 1: down similar to what we've seen already. Um, you know, 360 00:18:31,160 --> 00:18:34,600 Speaker 1: I think tech is ultimately longer term, uh, you know, 361 00:18:34,640 --> 00:18:36,680 Speaker 1: a long term growth story. It's a bye. But I 362 00:18:36,800 --> 00:18:39,160 Speaker 1: do think that in the near term, as we see 363 00:18:39,200 --> 00:18:41,479 Speaker 1: that cost of capital increase and some of these long 364 00:18:41,560 --> 00:18:45,240 Speaker 1: duration stocks could get hit by just pricing in that 365 00:18:45,520 --> 00:18:48,760 Speaker 1: new discount rate on a on a DCF basis. Sorry, 366 00:18:48,800 --> 00:18:54,119 Speaker 1: I got to my math side of very good to 367 00:18:54,720 --> 00:18:58,720 Speaker 1: appreciate has always the catchups of eight to supermanti bankf 368 00:18:58,760 --> 00:19:01,720 Speaker 1: America Security's head of you I secuity, anti rit strategy. 369 00:19:07,480 --> 00:19:10,159 Speaker 1: It is time I get less distracted and look at 370 00:19:10,280 --> 00:19:12,399 Speaker 1: jobs today, and I hope you agree. Ellen Setner is 371 00:19:12,480 --> 00:19:15,560 Speaker 1: wonderful to do this with Morgan Stanley. Ellen, you have 372 00:19:15,720 --> 00:19:19,879 Speaker 1: reaffirmed a stronger g dB statistic. Talk about the backdrop 373 00:19:20,040 --> 00:19:23,200 Speaker 1: of jobs is it links into year six and even 374 00:19:23,320 --> 00:19:28,760 Speaker 1: seven economic growth. So the backdrop of jobs is really important. 375 00:19:28,840 --> 00:19:32,879 Speaker 1: I mean, we're passing more fiscal stimulus UH this month, 376 00:19:33,320 --> 00:19:35,880 Speaker 1: and that's going to continue to build the bridge hopefully 377 00:19:35,960 --> 00:19:38,720 Speaker 1: to win jobs are really coming back hand over this 378 00:19:39,080 --> 00:19:42,480 Speaker 1: because you need that bridge in order to have those 379 00:19:42,560 --> 00:19:47,200 Speaker 1: government transfers help households, help workers that are still without 380 00:19:47,320 --> 00:19:49,800 Speaker 1: jobs until we get those jobs back and we can 381 00:19:49,880 --> 00:19:53,440 Speaker 1: replace that with labor income. So the income growth has 382 00:19:53,520 --> 00:19:56,600 Speaker 1: to be there in order to drive consumption in GDP 383 00:19:56,760 --> 00:19:59,800 Speaker 1: as high as we've got it. We don't think today's 384 00:20:00,000 --> 00:20:02,639 Speaker 1: report is going to be more than a trickle of 385 00:20:02,720 --> 00:20:04,760 Speaker 1: jobs back, but I think in a couple of months 386 00:20:04,800 --> 00:20:07,480 Speaker 1: we're going to see that that really barely Okay, well, 387 00:20:07,520 --> 00:20:09,480 Speaker 1: this is really important as we go from a DP 388 00:20:09,760 --> 00:20:13,240 Speaker 1: to claim. So the jobs report many people ellen above 389 00:20:13,320 --> 00:20:17,280 Speaker 1: you at a hundred thousand, How would you perceive and 390 00:20:17,320 --> 00:20:20,720 Speaker 1: how does Morgan Stanley perceive markets will react to a 391 00:20:20,840 --> 00:20:25,800 Speaker 1: Zentner a hundred thousand. So I think the I'm glad 392 00:20:25,840 --> 00:20:28,800 Speaker 1: you asked how markets reacts. Of course, from economist standpoint, 393 00:20:28,920 --> 00:20:32,320 Speaker 1: will borrow you to death. The different statistically between sixty 394 00:20:32,359 --> 00:20:35,399 Speaker 1: thousand and a hundred eight thousand is pretty much nothing 395 00:20:35,520 --> 00:20:38,560 Speaker 1: when you think of the wide standard deviations that are 396 00:20:38,600 --> 00:20:42,200 Speaker 1: in this data. But the market right is looking for 397 00:20:43,400 --> 00:20:47,320 Speaker 1: any positive data uh in order to continue to justify 398 00:20:47,520 --> 00:20:51,040 Speaker 1: this march higher UH in the ten uere And so 399 00:20:51,840 --> 00:20:54,879 Speaker 1: if the if the if we get something above consensus, 400 00:20:55,040 --> 00:20:58,360 Speaker 1: meaning so it goes beyond market expectations. So we get 401 00:20:58,440 --> 00:21:00,800 Speaker 1: sort of the higher especially like the five hundred thousand, 402 00:21:00,840 --> 00:21:03,680 Speaker 1: which is one of the top end estimates from from 403 00:21:04,119 --> 00:21:07,600 Speaker 1: Bloomberg contributors. UH. You know, certainly that's something that is 404 00:21:07,680 --> 00:21:10,520 Speaker 1: bound to send the tenure higher. Right, the market is 405 00:21:10,640 --> 00:21:13,720 Speaker 1: looking for things to justify this move. Now, is a 406 00:21:13,840 --> 00:21:17,040 Speaker 1: higher tenure justified? Absolutely, We're going to be in a 407 00:21:17,119 --> 00:21:20,600 Speaker 1: completely different spot with the outlook looking much better as 408 00:21:20,720 --> 00:21:24,440 Speaker 1: as Governor Brayner has said earlier this week, the direction 409 00:21:24,480 --> 00:21:27,480 Speaker 1: of travels perfectly fine. The markets should be pricing in 410 00:21:27,600 --> 00:21:31,840 Speaker 1: a better outlook. It's just the volatility UH and speed 411 00:21:31,880 --> 00:21:34,199 Speaker 1: at which we get there that tends to be uncomfortable 412 00:21:34,760 --> 00:21:37,800 Speaker 1: for the Fed. Outside of the volatility of Thursday. Allen, 413 00:21:38,080 --> 00:21:41,040 Speaker 1: what should the FET chat be uncomfortable with right now 414 00:21:41,160 --> 00:21:42,840 Speaker 1: that you think he's ignoring? Do you think he's being 415 00:21:42,880 --> 00:21:46,880 Speaker 1: slightly tone deaf anywhere? That's all well, I don't think 416 00:21:46,920 --> 00:21:49,240 Speaker 1: that he's being tone deaf, but I don't think he's 417 00:21:49,280 --> 00:21:51,960 Speaker 1: sending the message forceful enough for markets. I think you 418 00:21:52,080 --> 00:21:55,720 Speaker 1: did a good job of framing this earlier on the show, 419 00:21:55,880 --> 00:21:58,800 Speaker 1: talking about basically they don't speak the same language. The 420 00:21:58,880 --> 00:22:01,280 Speaker 1: FED can feel like send a strong message. I mean 421 00:22:01,359 --> 00:22:05,000 Speaker 1: Pal's message when I read it as an economist yesterday 422 00:22:05,320 --> 00:22:08,880 Speaker 1: was things are good, things are getting better. There's there's 423 00:22:08,920 --> 00:22:12,160 Speaker 1: even less downside risk to inflation. There's probably upside risk 424 00:22:12,200 --> 00:22:14,760 Speaker 1: to inflation, and yes it's transported, but guess what, We're 425 00:22:14,840 --> 00:22:17,920 Speaker 1: still not going to do anything that is risk on. 426 00:22:18,359 --> 00:22:20,280 Speaker 1: If that's not a risk on message, I don't know 427 00:22:20,400 --> 00:22:23,920 Speaker 1: what is. But it wasn't said forceful enough, so I 428 00:22:24,000 --> 00:22:26,480 Speaker 1: don't think. I think it just sort of went over 429 00:22:26,560 --> 00:22:29,320 Speaker 1: people's heads that were that we're watching. So the FED 430 00:22:29,480 --> 00:22:32,159 Speaker 1: needs to be much more forceibule in this communication and 431 00:22:32,240 --> 00:22:34,920 Speaker 1: most likely he'll take advantage of that at the March 432 00:22:35,000 --> 00:22:38,200 Speaker 1: seventeen meeting when he does a Q and A. But 433 00:22:38,240 --> 00:22:41,440 Speaker 1: they're gonna be challenged on this all years. The data 434 00:22:41,520 --> 00:22:45,280 Speaker 1: continues to roll in. It's just confirming a good outlook, 435 00:22:45,520 --> 00:22:47,359 Speaker 1: but the market tends to take that and want to 436 00:22:47,400 --> 00:22:49,600 Speaker 1: take it even further. And I think you've nowada and 437 00:22:49,680 --> 00:22:51,720 Speaker 1: some I touched on this earlier. This is going to 438 00:22:51,760 --> 00:22:53,480 Speaker 1: be the debate, not for the next couple of weeks. 439 00:22:53,560 --> 00:22:55,679 Speaker 1: This is the debate for the next several months when 440 00:22:55,720 --> 00:22:58,200 Speaker 1: those base effects start to kick in and we start 441 00:22:58,280 --> 00:22:59,960 Speaker 1: to get that tuggable and what I think would be really, 442 00:23:00,000 --> 00:23:02,840 Speaker 1: really fascinating and we haven't seen it yet. The real 443 00:23:03,000 --> 00:23:05,040 Speaker 1: test of the fed's credibility would come if we've got 444 00:23:05,119 --> 00:23:06,920 Speaker 1: to break out at the front end of the yield curve, 445 00:23:07,200 --> 00:23:09,520 Speaker 1: because people started to believe the FED would blink and 446 00:23:09,560 --> 00:23:12,800 Speaker 1: I don't see that yet. Pick your company's Amazon. We 447 00:23:12,920 --> 00:23:15,480 Speaker 1: spoke to Exxon yesterday. I know, John, you love the 448 00:23:15,560 --> 00:23:20,159 Speaker 1: Delta Airlines interview. How do those companies perform given a 449 00:23:20,320 --> 00:23:24,280 Speaker 1: Zentner seven GDP if growth gets better? Good times Even 450 00:23:24,320 --> 00:23:26,400 Speaker 1: if you would go higher, Ellen, And isn't that the story? 451 00:23:26,440 --> 00:23:28,399 Speaker 1: If yours go higher because growth gets better, that's a 452 00:23:28,440 --> 00:23:30,720 Speaker 1: good story. I just wonder if we start to get 453 00:23:30,720 --> 00:23:32,960 Speaker 1: that challenge at the front end as the months progress sellen, 454 00:23:33,160 --> 00:23:35,120 Speaker 1: if we do start to get a real tug of wars, 455 00:23:35,119 --> 00:23:37,800 Speaker 1: some real tension, and so believe the Fed could blink 456 00:23:38,080 --> 00:23:40,440 Speaker 1: even though they've told us what they expect and they've 457 00:23:40,480 --> 00:23:42,720 Speaker 1: told us what they'll do when it happens, which is 458 00:23:42,800 --> 00:23:45,480 Speaker 1: nothing right. So that's why I think it is going 459 00:23:45,560 --> 00:23:48,640 Speaker 1: to be quite the communication challenge for them. In One 460 00:23:48,680 --> 00:23:52,000 Speaker 1: way that they can keep the front end end is 461 00:23:53,400 --> 00:23:56,400 Speaker 1: altering the timing or pushing out the timing of when 462 00:23:56,480 --> 00:23:59,639 Speaker 1: the bed draws down its balance sheet. You know, even 463 00:23:59,760 --> 00:24:04,840 Speaker 1: if the FED starts tapering in January two as we 464 00:24:05,000 --> 00:24:09,440 Speaker 1: expect UH, and you taper at every meeting, which would 465 00:24:09,440 --> 00:24:15,040 Speaker 1: be in line with the pace that they tapered at UH, 466 00:24:15,280 --> 00:24:18,560 Speaker 1: you would be looking at the bulk of two that 467 00:24:18,640 --> 00:24:20,960 Speaker 1: it takes to finish paper in the balance sheet. They 468 00:24:21,000 --> 00:24:24,320 Speaker 1: will not raise rates before they finished papering the balance sheet, 469 00:24:24,359 --> 00:24:27,400 Speaker 1: so there's only you know, so far forward that rate 470 00:24:27,480 --> 00:24:29,840 Speaker 1: hikes can come, and so the front end can be 471 00:24:29,960 --> 00:24:32,320 Speaker 1: addressed that way in through communication. We think at the 472 00:24:32,400 --> 00:24:35,680 Speaker 1: March MC meeting, even though they revise up where their 473 00:24:35,720 --> 00:24:38,840 Speaker 1: forecast for growth maybe show a little bit more inflation 474 00:24:38,880 --> 00:24:41,680 Speaker 1: in the near term, uh, we still think that they're 475 00:24:41,680 --> 00:24:46,440 Speaker 1: gonna fail to show a median UH placement on the 476 00:24:46,560 --> 00:24:49,200 Speaker 1: dot plot of an expectation that they'll hype before the 477 00:24:49,320 --> 00:24:51,960 Speaker 1: end of three. So that's going to continue to send 478 00:24:52,400 --> 00:24:55,320 Speaker 1: a strong message to markets. Ellen. Just to tie this 479 00:24:55,440 --> 00:24:58,360 Speaker 1: all together, there's a bigger idea behind everything that we're 480 00:24:58,400 --> 00:25:01,440 Speaker 1: talking about, which is, at what point does market turmoil 481 00:25:01,520 --> 00:25:04,479 Speaker 1: or frankly a sell off and risk your assets affect 482 00:25:04,640 --> 00:25:07,760 Speaker 1: the underlying economy. And this is really a key question 483 00:25:07,840 --> 00:25:10,400 Speaker 1: as we take a look at froth that's getting blown 484 00:25:10,440 --> 00:25:12,560 Speaker 1: off the top, which might be healthy. So at what 485 00:25:12,760 --> 00:25:15,800 Speaker 1: point should the Fed start to care about a sell 486 00:25:15,840 --> 00:25:18,520 Speaker 1: off and say stocks, or a sell off in credit 487 00:25:18,920 --> 00:25:21,720 Speaker 1: if we don't necessarily see companies having to borrow money 488 00:25:21,760 --> 00:25:24,320 Speaker 1: because they've already excepted their maturities and there isn't that 489 00:25:24,480 --> 00:25:29,000 Speaker 1: clear cut financing transmission mechanism. Yeah, so it's a great question, Lisa. 490 00:25:29,160 --> 00:25:34,280 Speaker 1: So essentially they care when they look at underlying financial 491 00:25:34,320 --> 00:25:36,960 Speaker 1: conditions and they've they've tightened in a way that threatens 492 00:25:37,040 --> 00:25:40,080 Speaker 1: the outlook. And this is why even though the tenure 493 00:25:40,240 --> 00:25:43,000 Speaker 1: rising is fine, we should see a higher tenure. They 494 00:25:43,040 --> 00:25:46,399 Speaker 1: don't like the speed or volatility UH in movements in 495 00:25:46,440 --> 00:25:49,600 Speaker 1: the tenure because it creates uncertainty and the Fed likes 496 00:25:49,640 --> 00:25:52,720 Speaker 1: to be certain about its outlook. So when you strip 497 00:25:52,800 --> 00:25:55,080 Speaker 1: out the change in yields right now and you look 498 00:25:55,119 --> 00:25:58,200 Speaker 1: at financial conditions elsewhere, they've just moved sideways. They've not 499 00:25:58,320 --> 00:26:01,159 Speaker 1: tightened at all. And that's why chair of PAL can 500 00:26:01,280 --> 00:26:04,880 Speaker 1: sound comfortable about the increases in the tenure because there's 501 00:26:04,920 --> 00:26:07,520 Speaker 1: not any sort of spill over effects with affect the economy. 502 00:26:07,920 --> 00:26:10,400 Speaker 1: You mentioned the stock market and credit. Stock market low 503 00:26:10,520 --> 00:26:12,879 Speaker 1: on their list of concerns. It doesn't have a strong 504 00:26:13,320 --> 00:26:16,560 Speaker 1: transfer mechanism to the rest of the economy. Credit does, 505 00:26:17,080 --> 00:26:22,080 Speaker 1: so UH. You know, yes, high yield UH is still 506 00:26:23,600 --> 00:26:28,960 Speaker 1: performing okay, right, but if spreads UH, even in high 507 00:26:29,040 --> 00:26:32,600 Speaker 1: yield widened, funding levels are not as favorable, and that 508 00:26:32,760 --> 00:26:37,359 Speaker 1: starts to affect other up the credit quality chain and 509 00:26:37,440 --> 00:26:40,600 Speaker 1: starts to drag out I G spreads right that has 510 00:26:40,600 --> 00:26:44,200 Speaker 1: an immediate upfront impact on the economy, especially the labor market. 511 00:26:44,280 --> 00:26:46,960 Speaker 1: And with long tails, that's when the BED gets concerned, 512 00:26:47,000 --> 00:26:50,200 Speaker 1: and that's what happened in late and that's when I 513 00:26:50,240 --> 00:26:52,760 Speaker 1: think you get a very very different chairman, pal Ellen. 514 00:26:52,840 --> 00:26:55,119 Speaker 1: Great to catch up as always, good to see Allen Xeta, 515 00:26:55,440 --> 00:26:58,159 Speaker 1: the wonderful Elenxetna of Morecin Stanley, the chief US Economy 516 00:26:58,200 --> 00:27:00,600 Speaker 1: is looking for six and a half percent GDP in 517 00:27:00,760 --> 00:27:03,159 Speaker 1: twenty one and five and twenty two. Compare that to 518 00:27:03,240 --> 00:27:12,119 Speaker 1: the FED at five and three point seven. Let's bring 519 00:27:12,160 --> 00:27:15,080 Speaker 1: in Prayer Misrael Teny Securities Global head of Right Strategy. Prayer, 520 00:27:15,160 --> 00:27:17,400 Speaker 1: Let's just start at the top, a new forecast two 521 00:27:17,760 --> 00:27:19,920 Speaker 1: on a ten year year end. What was it before 522 00:27:19,960 --> 00:27:22,680 Speaker 1: and why the change? So we were looking for one 523 00:27:22,800 --> 00:27:27,560 Speaker 1: fifty or to be precise, before yesterday. Why we changed 524 00:27:27,640 --> 00:27:30,200 Speaker 1: it was we heard from chap Owel that he wasn't 525 00:27:30,240 --> 00:27:32,600 Speaker 1: worried about the moves that happened over the last couple 526 00:27:32,680 --> 00:27:35,000 Speaker 1: of weeks, which I would argue only part of that 527 00:27:35,160 --> 00:27:38,360 Speaker 1: moves was for healthy reasons. The other part was technical. 528 00:27:38,520 --> 00:27:41,920 Speaker 1: Was supply fears, was fear that the FED might step away, 529 00:27:41,960 --> 00:27:44,000 Speaker 1: and we have a ton of treasuries to take down. 530 00:27:44,320 --> 00:27:46,040 Speaker 1: And we just heard from Chap Howel that it's not 531 00:27:46,200 --> 00:27:49,360 Speaker 1: disorderly enough, that this is not tightening in financial conditions. 532 00:27:49,640 --> 00:27:51,200 Speaker 1: So the market is going to dann from some more. 533 00:27:51,640 --> 00:27:53,800 Speaker 1: And you know, I think the market is looking ahead. 534 00:27:53,800 --> 00:27:56,240 Speaker 1: I think every market is looking to the end of COVID. 535 00:27:56,680 --> 00:27:58,800 Speaker 1: But at the end of COVID, we've got a certain 536 00:27:58,880 --> 00:28:01,280 Speaker 1: post COVID normal. But we also have a lot of 537 00:28:01,400 --> 00:28:04,480 Speaker 1: treasury so I didn't really move the front end as much. 538 00:28:04,520 --> 00:28:05,800 Speaker 1: I think the FAT is going to be has a 539 00:28:05,880 --> 00:28:09,640 Speaker 1: really high bar to hike, but to taper, they have us, 540 00:28:10,000 --> 00:28:12,560 Speaker 1: you know, a shorter b bar to hike, and we 541 00:28:12,640 --> 00:28:14,920 Speaker 1: have a lot more supply. So it's really the long 542 00:28:15,080 --> 00:28:17,000 Speaker 1: end that I think is going to sort of try 543 00:28:17,040 --> 00:28:19,240 Speaker 1: and force the Fat's hand. But we're not there yet. 544 00:28:19,320 --> 00:28:20,959 Speaker 1: So you know, I think rates are going to keep 545 00:28:21,080 --> 00:28:25,359 Speaker 1: rising until we get that disorderly market functioning or we 546 00:28:25,440 --> 00:28:28,400 Speaker 1: get that persistent tightening in financial conditions. Tell you we're 547 00:28:28,400 --> 00:28:30,240 Speaker 1: not there yet. I think it's fair to say that 548 00:28:30,320 --> 00:28:33,440 Speaker 1: that seven year auction last week was somewhat disorderly. We've 549 00:28:33,440 --> 00:28:36,200 Speaker 1: got thirty year bonds coming out next week billion dollars 550 00:28:36,240 --> 00:28:38,480 Speaker 1: worth thirty eight billion dollars worth of ten year notes 551 00:28:38,880 --> 00:28:41,400 Speaker 1: as well. So to bring you concerned about that extra 552 00:28:41,480 --> 00:28:43,480 Speaker 1: supply coming in the next week, given what's been happening 553 00:28:43,520 --> 00:28:46,000 Speaker 1: in this market over the last couple of weeks, I 554 00:28:46,080 --> 00:28:48,040 Speaker 1: am very nervous. I mean, I think we were all 555 00:28:48,120 --> 00:28:50,920 Speaker 1: looking for the fed chair. We didn't get that support. 556 00:28:51,160 --> 00:28:53,080 Speaker 1: The market is going to set up, so I can't 557 00:28:53,120 --> 00:28:55,040 Speaker 1: say that the auction will be awful. I mean, we 558 00:28:55,120 --> 00:28:57,280 Speaker 1: know that auction is coming up. I think you're going 559 00:28:57,360 --> 00:28:59,480 Speaker 1: to get once perils is out of the way. We 560 00:28:59,560 --> 00:29:01,600 Speaker 1: don't have a name of fat talk, they're on blackout. 561 00:29:01,880 --> 00:29:03,360 Speaker 1: I think the market is going to set up for 562 00:29:03,480 --> 00:29:06,800 Speaker 1: that auction, so expect to see higher rates into the auction. 563 00:29:07,240 --> 00:29:09,240 Speaker 1: But you know what, there's another There's a twenty year 564 00:29:09,320 --> 00:29:12,280 Speaker 1: right after, and then within a week we'll have two 565 00:29:12,400 --> 00:29:15,440 Speaker 1: five sevens again. So it's just the pace of supply 566 00:29:15,560 --> 00:29:17,840 Speaker 1: here is so high that I think every auction is 567 00:29:17,880 --> 00:29:19,880 Speaker 1: going to be a stress point for the market. Does 568 00:29:19,920 --> 00:29:21,920 Speaker 1: it spill over into every other market? I think that's 569 00:29:21,960 --> 00:29:24,280 Speaker 1: the question. Do you correlate really yield into your two 570 00:29:24,360 --> 00:29:26,760 Speaker 1: percent call? You go from a negative zero point six 571 00:29:26,840 --> 00:29:29,320 Speaker 1: four out. Let's say zero percent. Can you say that? 572 00:29:30,480 --> 00:29:32,960 Speaker 1: I think zero to me is really hard to see. 573 00:29:33,000 --> 00:29:34,880 Speaker 1: I think the you know, at that point it's going 574 00:29:34,960 --> 00:29:37,760 Speaker 1: to start to impact the real economy. But you know, 575 00:29:37,880 --> 00:29:40,440 Speaker 1: we are expecting a little bit more on the inflation front. 576 00:29:40,480 --> 00:29:43,040 Speaker 1: I think you get that reopening related. You know, catch 577 00:29:43,160 --> 00:29:46,000 Speaker 1: up demand is going to help inflation expectations. But I 578 00:29:46,080 --> 00:29:48,120 Speaker 1: do have higher real rates by the end of the year, 579 00:29:48,440 --> 00:29:51,640 Speaker 1: still negative, but you know, negative twenty five, negative thirty. 580 00:29:51,720 --> 00:29:54,880 Speaker 1: I think maybe financial conditions can just about handle that. 581 00:29:55,320 --> 00:29:58,000 Speaker 1: I think much higher or positive is going to be 582 00:29:58,160 --> 00:30:01,760 Speaker 1: very hard. Pre we're waiting for your comments on the plumbing. 583 00:30:01,840 --> 00:30:04,440 Speaker 1: We're looking out at the tenure duration and the measurement 584 00:30:04,480 --> 00:30:07,120 Speaker 1: of the tenure duration and the overnight and the repurchase 585 00:30:07,240 --> 00:30:12,120 Speaker 1: market is extraordinary. All would suggest absolutely historic. Is this 586 00:30:12,360 --> 00:30:16,160 Speaker 1: a big deal of concern or does this gets solved? 587 00:30:16,640 --> 00:30:19,800 Speaker 1: Is more issuance comes out? I think it gets so. 588 00:30:19,920 --> 00:30:22,959 Speaker 1: I think specifically for the tenure report that's trading negative 589 00:30:23,000 --> 00:30:26,479 Speaker 1: three percent historic um, I think that gets solved as 590 00:30:26,560 --> 00:30:29,600 Speaker 1: supply comes in. For the front end plumbing, there's a 591 00:30:29,640 --> 00:30:31,600 Speaker 1: separate issue where we have a lot of reserves in 592 00:30:31,680 --> 00:30:35,040 Speaker 1: the system hopefully the fatties is the SLR constrained. I 593 00:30:35,120 --> 00:30:38,000 Speaker 1: think we need more for those very front end rates 594 00:30:38,040 --> 00:30:40,160 Speaker 1: to rise. There's a big t G a balance, so 595 00:30:40,160 --> 00:30:42,600 Speaker 1: I think very front end rates stay low. But the 596 00:30:42,720 --> 00:30:46,520 Speaker 1: specific point you're raising, the specialness in the report contract 597 00:30:46,760 --> 00:30:48,880 Speaker 1: for the TENNU, I think that will ease. Right. We 598 00:30:49,000 --> 00:30:51,800 Speaker 1: have a ton of supply. Listen, this is absolutely critical, 599 00:30:51,840 --> 00:30:53,760 Speaker 1: and I want to point out that our true expert 600 00:30:53,840 --> 00:30:57,000 Speaker 1: on as Irah Jersey, agrees with mis misra. Yeah, the 601 00:30:57,080 --> 00:30:58,760 Speaker 1: idea that it will remedy itself. But it's sort of 602 00:30:58,880 --> 00:31:00,720 Speaker 1: interesting if you look at the technic goes underpinning this. 603 00:31:00,720 --> 00:31:02,880 Speaker 1: And I'm not going to get into it, but Japanese 604 00:31:03,000 --> 00:31:07,000 Speaker 1: investors were selling a lot of those off the run treasuries, 605 00:31:07,000 --> 00:31:10,000 Speaker 1: which raises a question not about the repo market pria, 606 00:31:10,240 --> 00:31:12,160 Speaker 1: but in general, who's going to buy all of this 607 00:31:12,280 --> 00:31:14,840 Speaker 1: depth that's coming online. You said that every auction is 608 00:31:14,880 --> 00:31:17,840 Speaker 1: going to be a stress point going forward. Real rates 609 00:31:17,880 --> 00:31:21,560 Speaker 1: perhaps rising not because of inflation, expected expectations going up, 610 00:31:21,880 --> 00:31:25,240 Speaker 1: not because of necessarily even growth, but just because sheer 611 00:31:25,400 --> 00:31:28,920 Speaker 1: supply is outstripping demand. Where is the demand going to 612 00:31:29,000 --> 00:31:31,080 Speaker 1: come to on the edges? If the FED is not 613 00:31:31,240 --> 00:31:33,800 Speaker 1: coming in and picking up more. Right, So if we 614 00:31:33,880 --> 00:31:37,120 Speaker 1: look at last year, US banks were very large bias 615 00:31:37,440 --> 00:31:40,680 Speaker 1: their flush with reserves. They had the sl exemption, so 616 00:31:40,720 --> 00:31:43,680 Speaker 1: they actually had a capital exemption for buying treasuries. I 617 00:31:43,760 --> 00:31:46,120 Speaker 1: hope that's extended. That that's supposed to run out of 618 00:31:46,120 --> 00:31:48,280 Speaker 1: the end of March, so I think banks will step 619 00:31:48,360 --> 00:31:51,040 Speaker 1: in at some point. Asset managers will step in. But 620 00:31:51,160 --> 00:31:53,320 Speaker 1: this is why real rates will need to rise, because 621 00:31:53,360 --> 00:31:56,000 Speaker 1: you have to attract people from other asset classes. I 622 00:31:56,080 --> 00:31:59,040 Speaker 1: think the saddest thing about the treasury market is it's 623 00:31:59,080 --> 00:32:02,200 Speaker 1: losing some of the head property. When equities fall, rates 624 00:32:02,240 --> 00:32:05,080 Speaker 1: don't fall. So if I'm looking for the best hedge, 625 00:32:05,440 --> 00:32:07,280 Speaker 1: really it's hard for me to get too excited about 626 00:32:07,320 --> 00:32:10,120 Speaker 1: the tenure at one fifty unless now you're at two 627 00:32:10,200 --> 00:32:12,400 Speaker 1: percent and there's a lot more room for it to decline, 628 00:32:12,560 --> 00:32:14,640 Speaker 1: which is one of the underpinnings for why we think 629 00:32:14,760 --> 00:32:17,480 Speaker 1: rates will keep rising. The FED steps away. Really have 630 00:32:17,560 --> 00:32:20,800 Speaker 1: to attract other buyers from other asset classes. Let's get 631 00:32:20,800 --> 00:32:24,240 Speaker 1: everyone to turn the volume down. Libel just to found 632 00:32:24,240 --> 00:32:27,000 Speaker 1: a word on Liinebear, what's happen in prayer? Well, absolutely 633 00:32:27,120 --> 00:32:29,920 Speaker 1: not not raise the Libel down because we just heard 634 00:32:29,960 --> 00:32:31,840 Speaker 1: from the IBA a couple of hours ago that they 635 00:32:31,880 --> 00:32:34,360 Speaker 1: are ending. So I think those of us, you know, 636 00:32:34,440 --> 00:32:36,120 Speaker 1: in the five stages of grief, if you were in 637 00:32:36,200 --> 00:32:38,600 Speaker 1: the denial stage, you've got to move out of that 638 00:32:38,760 --> 00:32:41,160 Speaker 1: stage because we now have an end date, right, It's 639 00:32:41,200 --> 00:32:43,600 Speaker 1: like the death notice has been given. I mean, it's 640 00:32:43,640 --> 00:32:45,800 Speaker 1: something some of us have been working on for years, 641 00:32:45,920 --> 00:32:48,520 Speaker 1: but today was pretty monumental in the sense we know 642 00:32:48,880 --> 00:32:51,080 Speaker 1: that Sterling Libel will end at the end of this year. 643 00:32:51,360 --> 00:32:53,480 Speaker 1: En libelar ends at the end of this year. Dollar 644 00:32:53,560 --> 00:32:57,400 Speaker 1: Libel will definitely end, but at the end of June. 645 00:32:58,600 --> 00:33:05,400 Speaker 1: Emotional John, thank you mistress. It's a good library. Oh 646 00:33:05,520 --> 00:33:10,600 Speaker 1: I s strategy Priam isra over cocktails can being a 647 00:33:10,720 --> 00:33:15,440 Speaker 1: conversation to deadly silence with a conversation on live board. 648 00:33:16,640 --> 00:33:19,760 Speaker 1: She's right, it's a huge deal. She's right. This is 649 00:33:19,800 --> 00:33:23,760 Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live 650 00:33:23,960 --> 00:33:27,680 Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio 651 00:33:27,920 --> 00:33:31,520 Speaker 1: and on Bloomberg Television each day from six to nine 652 00:33:31,560 --> 00:33:35,960 Speaker 1: am for insight from the best in economics, finance, investment, 653 00:33:36,160 --> 00:33:41,120 Speaker 1: and international relations. And subscribe to the Surveillance Podcast, on 654 00:33:41,280 --> 00:33:45,080 Speaker 1: Apple Podcast, SoundCloud, Bloomberg dot com, and of course on 655 00:33:45,200 --> 00:33:49,320 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg.