WEBVTT - Surveillance: Big Tech Backlash Brewing, Romer Says 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, sun Cloud, Bloomberg dot com, 0:00:23.920 --> 0:00:31.000 and of course on the Bloomberg terminal. We start strong 0:00:31.120 --> 0:00:33.920 in this week of technology earnings. You do that with 0:00:33.960 --> 0:00:38.400 a laureate from New York University, Berkeley, Stanford, Rochester, and 0:00:38.479 --> 0:00:41.640 I think from Chicago as well. Paul Romer joins us. 0:00:41.680 --> 0:00:44.199 Now we're thrilled to have him with us today on 0:00:44.520 --> 0:00:47.879 technology and what it has done to us. Professor, I 0:00:47.920 --> 0:00:50.479 want to go back to nine when you stop the 0:00:50.520 --> 0:00:54.800 economics profession with human capital and growth, and then you 0:00:54.840 --> 0:00:59.440 went on to the technology inside our system, the and 0:00:59.640 --> 0:01:03.840 Dodge and this technological change. How do you look at 0:01:03.840 --> 0:01:08.280 these four, five, six ginormous companies and what they have 0:01:08.520 --> 0:01:13.040 indogenous lee done to us. Yeah, you know, it's a 0:01:13.160 --> 0:01:18.920 very interesting story. Uh uh. The technology, the technological progress 0:01:18.959 --> 0:01:25.200 has been enormous, better chips, better software, better devices. Um, 0:01:25.880 --> 0:01:30.600 the the effect on society has been ambiguous. We've had 0:01:30.760 --> 0:01:34.520 many good things, but also some some bad things. I 0:01:34.560 --> 0:01:37.479 think that the bad things all traced back to this 0:01:37.640 --> 0:01:41.600 pivotal decision by Google followed by Facebook to switch to 0:01:41.640 --> 0:01:46.679 the advertising model, the targeted advertising model. This has had 0:01:46.920 --> 0:01:50.320 all kinds of repercussions that we're now living with, like 0:01:51.200 --> 0:01:55.960 another wave of the pandemic driven by vaccine hesitation that's 0:01:55.960 --> 0:02:01.760 that's been fostered via social media. So we've combined enormous 0:02:01.800 --> 0:02:06.120 technological progress with a really bad business model, and we're 0:02:06.120 --> 0:02:08.960 paying the price. Should we break up these companies? And 0:02:09.000 --> 0:02:12.120 to be narrow about it, if you can take Amazon 0:02:12.520 --> 0:02:17.400 with cardboard boxes, the cloud and a burgeoning advertising business 0:02:17.440 --> 0:02:23.120 as you mentioned, is it standard oil of New Jersey? Well, 0:02:23.720 --> 0:02:25.960 you know, I think first I I worked on the 0:02:26.000 --> 0:02:29.280 government side of the Microsoft case. I actually helped, you know, 0:02:29.360 --> 0:02:34.400 design the proposed apps Ops breakup of Microsoft, which the 0:02:34.520 --> 0:02:38.080 judiciary just rejected at the appeals court level. Um, I 0:02:38.120 --> 0:02:42.160 think it's extremely unlikely that a judiciary that's even more 0:02:42.200 --> 0:02:45.880 conservative now is going to approve a breakup of any 0:02:45.919 --> 0:02:47.720 of these firms. I think we just have to be 0:02:47.760 --> 0:02:50.760 realistic about that. So what I think we need to 0:02:50.800 --> 0:02:53.600 do instead of focusing just on breakups or at least 0:02:53.600 --> 0:02:57.760 government forced breakups. Is to change the incentives to get 0:02:57.800 --> 0:03:02.280 them to shift away from this targeted advertising, surveillance spying 0:03:02.440 --> 0:03:04.839 kind of model and to go back to the old 0:03:04.840 --> 0:03:08.560 fashioned model where people pay to get things, so we 0:03:08.600 --> 0:03:11.400 could use things like the tax code as I've suggested, 0:03:11.639 --> 0:03:14.840 to create incentives for firms to stop relying so much 0:03:14.840 --> 0:03:17.560 on advertising and to rely much more heavily on the 0:03:17.639 --> 0:03:22.000 subscriptions the way Netflix does. Paul, is this tech dominance 0:03:22.040 --> 0:03:25.040 related to the stickiness of the high unemployment rate, of 0:03:25.120 --> 0:03:28.240 the stickiness of the low participation rate that was currently 0:03:28.240 --> 0:03:34.559 seeing in the US labor market. Yeah, I don't think so. Um, 0:03:34.600 --> 0:03:37.400 you know, reasonable people can differ, but I don't think 0:03:37.440 --> 0:03:41.040 this is the problem. I think fundamentally, we've been in 0:03:41.160 --> 0:03:44.400 for twenty years now in a mode where the Congress 0:03:44.560 --> 0:03:47.400 wasn't able to do anything, so all of the work 0:03:48.040 --> 0:03:50.640 fell on recovery, fell to the to the Fed. We 0:03:50.800 --> 0:03:53.280 use very low interest rates is a way to try 0:03:53.280 --> 0:03:56.080 and recover, but that meant that we ended up not 0:03:56.200 --> 0:04:00.760 recovering fast enough and far enough, so that we've steadily 0:04:00.920 --> 0:04:04.160 ratcheted down the key metric I think we should be watching, 0:04:04.200 --> 0:04:09.400 which is the employment rate for four year olds So 0:04:09.440 --> 0:04:11.200 what we need to do now and what we seem 0:04:11.280 --> 0:04:14.440 to be headed towards now is something more like what 0:04:14.480 --> 0:04:18.880 we saw under Reagan, which is a very aggressive loose 0:04:19.480 --> 0:04:24.640 fiscal policy, stimulative fiscal policy, and has needed type monetary 0:04:24.680 --> 0:04:27.800 policy to keep inflation and check. So I think that 0:04:28.440 --> 0:04:31.080 we just have to recognize that it takes a long time, 0:04:31.360 --> 0:04:34.240 it's a slow process to get people back into jobs. 0:04:34.600 --> 0:04:36.920 We just got to keep pushing on this recovery long 0:04:37.040 --> 0:04:39.520 enough to get back to where we should be, which 0:04:39.600 --> 0:04:42.159 is with a lot more people who are employed. Paul, 0:04:42.480 --> 0:04:43.960 I want to stay on this point for a minute, 0:04:43.960 --> 0:04:46.000 because there's been a lot of question around how much 0:04:46.000 --> 0:04:49.960 the un enhanced unemployment rates UH enhanced unemployment benefits I 0:04:50.000 --> 0:04:54.280 should say, actually contributed to the stickiness of the participation 0:04:54.400 --> 0:04:56.839 rate remaining so low. There have a number of studies 0:04:56.839 --> 0:04:59.640 that have challenged that, other people saying that, look, the 0:04:59.640 --> 0:05:01.680 ECONO of me has not gotten back on. You still 0:05:01.680 --> 0:05:05.000 have people who childcare is still an issue. So what 0:05:05.200 --> 0:05:08.360 is the main why behind the stickiness right now at 0:05:08.400 --> 0:05:11.880 this point in the pandemic. Yeah, I mean, if you 0:05:12.080 --> 0:05:15.400 look back at let's say, the recovery from the recession 0:05:15.440 --> 0:05:19.120 in the early two thousands. Getting people back into jobs 0:05:19.400 --> 0:05:23.679 is a slow process. It's very easy to kick people 0:05:23.680 --> 0:05:27.400 out of jobs. That happens very fast, and then remaking 0:05:27.440 --> 0:05:32.200 these matches between employers and employees just takes time. And 0:05:32.240 --> 0:05:36.200 so we have to be realistic in our expectations about 0:05:36.240 --> 0:05:40.160 how long that takes and maintain the conditions to keep 0:05:40.240 --> 0:05:43.400 getting people back into those jobs for as for as 0:05:43.400 --> 0:05:45.279 long as it will take, and it will take, you know, 0:05:45.680 --> 0:05:48.680 I think many months UH to recover to the level 0:05:48.760 --> 0:05:50.680 we need to be at. We just have to be 0:05:50.760 --> 0:05:54.520 sure we don't give up too soon. There's just all 0:05:54.520 --> 0:05:56.520 sorts of ways to go here in the limited time 0:05:56.520 --> 0:05:58.839 we have left. I want you to talk about what 0:05:58.880 --> 0:06:03.080 everybody in this pandems going through. And Greg Gillman Yale 0:06:03.200 --> 0:06:07.880 University talks about it, the interiority of technology. How we're 0:06:07.880 --> 0:06:10.839 all sitting in our bedrooms, are hunched over our computer 0:06:11.600 --> 0:06:15.520 doing computer stuff and not being social. Is that the 0:06:15.680 --> 0:06:18.440 ultimate risk to the United States? Are we going to 0:06:18.520 --> 0:06:25.080 be as lonely as Tom Keane, John Farrow and Lisa Bramowitz? Yeah? Well, 0:06:25.160 --> 0:06:27.279 you know that somebody told me that the new the 0:06:27.320 --> 0:06:30.599 new acronym is UH is fogo, you know, instead of 0:06:30.600 --> 0:06:33.800 fomo fear of missing out. Now it's fear of going out. 0:06:34.279 --> 0:06:36.760 So I think we're all suffering a little bit from 0:06:36.760 --> 0:06:39.960 this experience. But but I think there's a kind of 0:06:39.960 --> 0:06:43.560 a realization which is coming, which is that these tech 0:06:43.600 --> 0:06:49.400 companies have enormously have benefited enormously from our greater reliance 0:06:49.400 --> 0:06:54.159 on them, and these tech companies are causing the problems 0:06:54.200 --> 0:06:59.080 we're seeing with vaccine hesitancy. So I think there's a 0:06:59.120 --> 0:07:02.480 backlash going against these firms. I don't think it's going 0:07:02.520 --> 0:07:05.320 to show up through a breakup via anti trust. I 0:07:05.320 --> 0:07:08.279 do think we're going to see legislation that range them in. 0:07:08.920 --> 0:07:10.840 I mean, I think, folks, again, this is the book 0:07:10.880 --> 0:07:12.840 The End of the Myth by Greg Grant and which 0:07:13.280 --> 0:07:16.240 is just a fabulous Africa can't say enough about the 0:07:16.280 --> 0:07:19.320 history of this, Professor Romer, is where we are right 0:07:19.320 --> 0:07:23.480 now like maybe we were with the railroads in I'll 0:07:23.560 --> 0:07:27.800 let you choose a technology. But this, this this bouncing 0:07:27.840 --> 0:07:30.880 off of technology that we're all doing on a week 0:07:30.880 --> 0:07:33.760 of technology earnings, is that where we are right now 0:07:33.920 --> 0:07:37.680 as we've been before. Yeah, you know, I'm not sure 0:07:37.760 --> 0:07:41.280 that there is a good historical um analog for what 0:07:41.320 --> 0:07:44.040 we're what we're doing with right now. UM, there's a 0:07:44.200 --> 0:07:46.600 very good story out in New York Times this morning 0:07:46.920 --> 0:07:53.280 about disinformation for higher. These platforms have created weaponry which 0:07:53.360 --> 0:07:56.520 is now available for the purchase for anybody who wants 0:07:56.560 --> 0:08:00.600 to go out and create disinformation. UM. You know, there 0:08:00.640 --> 0:08:04.040 are some echoes of the period of yellow journalism here, 0:08:04.360 --> 0:08:08.560 but but the scale of this and the speed uh 0:08:08.680 --> 0:08:12.680 that with which uh these new platforms of of propaganda 0:08:12.680 --> 0:08:16.040 and disinformation can operate is something we've we've just never 0:08:16.520 --> 0:08:20.320 never encountered before, and I think it's very frightened Paul. 0:08:20.600 --> 0:08:23.200 Just to wrap this all together, I'm curious about whether 0:08:23.240 --> 0:08:25.480 we could see some sort of China like moves in 0:08:25.520 --> 0:08:28.520 the United States when it comes to regulatory crackdowns on 0:08:28.800 --> 0:08:31.480 big tech, on control of data. And this is actually 0:08:31.480 --> 0:08:35.000 something that surprised markets with respect to how ferocious some 0:08:35.120 --> 0:08:37.360 of these moves and dramatic these moves have been over 0:08:37.400 --> 0:08:41.079 in China. Is that a purely idiosyncratic move or does 0:08:41.120 --> 0:08:44.079 this set the stage for the US to take similar 0:08:44.120 --> 0:08:47.360 I'll be perhaps less dramatic moves. No, I think there's 0:08:47.400 --> 0:08:50.680 a very close parallel. Everybody thinks about how different we 0:08:50.720 --> 0:08:53.480 are from China, but in any ways, our circumstances are 0:08:53.600 --> 0:08:57.800 very similar. We're on the verge of having platforms and 0:08:57.880 --> 0:09:01.480 companies that are so powerful and so influential in the 0:09:01.480 --> 0:09:06.240 political process that they're ungovernable, that they're beyond the rule 0:09:06.240 --> 0:09:09.680 of law, that the state can't actually get them to 0:09:09.720 --> 0:09:13.120 comply with the law. China has realized that this poses 0:09:13.160 --> 0:09:18.480 an existential threat to governance and law, and they've decided 0:09:18.520 --> 0:09:21.120 they have to stop it. We haven't gotten there yet 0:09:21.160 --> 0:09:24.280 in the United States, and I hope we get there soon, 0:09:24.400 --> 0:09:28.080 because the more influential of these platforms have propagain and 0:09:28.200 --> 0:09:31.480 to become, the harder it will be for us to 0:09:31.520 --> 0:09:34.160 reach a political consensus that we have to do something. 0:09:34.400 --> 0:09:36.920 Professor Fantastic to get your views on this program pulled 0:09:36.960 --> 0:09:39.800 rama the of n Yu, the Noval laureate and former 0:09:39.840 --> 0:09:48.319 World Bank Chief economist. Let's get to Lori Cavassin or 0:09:48.360 --> 0:09:51.320 obviously Capital Markets head of US Eculity Strategy, And Lori, 0:09:51.480 --> 0:09:53.880 let's start right there. What are we learning so far 0:09:53.960 --> 0:09:57.480 from the incoming Guarniggs. So look, I think this is 0:09:57.480 --> 0:09:59.720 going to be the pivotal week. Right. It's crazy busy 0:09:59.760 --> 0:10:01.360 with out well over a third of the S and 0:10:01.400 --> 0:10:03.320 P and some of these including some of these big 0:10:03.400 --> 0:10:05.840 tech behemoths. You know, I think what we're learning so 0:10:05.920 --> 0:10:08.320 far is that the value side of the market, the 0:10:08.320 --> 0:10:11.400 financials in particular, UM look like they're the weak link 0:10:11.440 --> 0:10:14.199 at this point in time. So far, we've actually seen 0:10:14.520 --> 0:10:18.400 some resilient in areas like technology and growth revisions generally, 0:10:18.840 --> 0:10:21.559 while we really just continue to see continued slippage on 0:10:21.600 --> 0:10:23.440 the financial side. So I really want to see this 0:10:23.480 --> 0:10:26.400 week if we're going to get conference confirmation of that trend, 0:10:26.440 --> 0:10:29.360 if you're going to maintain that tech resiliency UM. Look, 0:10:29.400 --> 0:10:31.640 I think in terms of other things that we are learning, 0:10:31.679 --> 0:10:33.760 you know, one of the fascinating stats over the past 0:10:33.800 --> 0:10:37.160 week that I saw was that bottom up sm p 0:10:37.280 --> 0:10:40.600 EPs moved up a couple of bucks, but two stayed flat, 0:10:40.640 --> 0:10:42.480 and so the growth rate for next year came down 0:10:42.520 --> 0:10:44.800 a little bit. UM. I want to see if we're 0:10:44.800 --> 0:10:47.280 really going to continue to see that enthusiasm build on 0:10:47.360 --> 0:10:50.000 next year. If not, I think we interpret it as 0:10:50.000 --> 0:10:52.720 sort of a continued slippage and earning sentiment. We're seeing 0:10:52.760 --> 0:10:55.280 other things that suggest that that's happening as well. Despite 0:10:55.280 --> 0:10:57.080 some of these really strong beats that we're getting. Do 0:10:57.120 --> 0:10:59.480 you think downgrade risk is starting to build? Hey, Laurie 0:10:59.480 --> 0:11:02.800 looking ahead to next year? I think I think so. 0:11:02.960 --> 0:11:05.000 I mean, I think the you know, I think the 0:11:05.080 --> 0:11:07.120 issue right, it's it's a question of the rate of 0:11:07.240 --> 0:11:10.120 change versus the dollar level, and that rate of change 0:11:10.200 --> 0:11:13.600 we have very clearly seen for two starting to slip 0:11:13.640 --> 0:11:16.360 just a teeny tiny bit. Now, the tech companies could 0:11:16.440 --> 0:11:19.160 cause that to reverse, but what we've basically got now 0:11:19.280 --> 0:11:21.680 is peak upward revision. So if you look back in June, 0:11:21.679 --> 0:11:24.440 the rate of upward revisions in the SMP five hundred 0:11:24.480 --> 0:11:26.720 was seventy eight percent, and so far in July that 0:11:26.760 --> 0:11:29.280 has slipped to seventy four percent. So what you have 0:11:29.440 --> 0:11:32.280 first is a deceleration of upward revisions. You just get 0:11:32.320 --> 0:11:35.160 fewer and fewer of them, and then it eventually translates 0:11:35.160 --> 0:11:37.480 into downward revisions. And those downward revisions may take a 0:11:37.520 --> 0:11:39.680 little bit of time to come, but it does look 0:11:39.679 --> 0:11:42.600 to me that we're already in that decelerating upward revision pace, 0:11:42.640 --> 0:11:44.960 and about half the sectors are contributing to that right now. 0:11:45.040 --> 0:11:47.880 Floria two part question where the one part answer, and 0:11:47.920 --> 0:11:50.959 it's the idea that could stocks rise amid slow growth 0:11:51.320 --> 0:11:54.319 rates come in, really yields come crashing down, and yet 0:11:54.320 --> 0:11:57.280 we're supposed to believe that equities rise. And I combine 0:11:57.320 --> 0:12:00.640 that with a wonderful Jeffrey de graph over Rand Signs 0:12:00.679 --> 0:12:05.920 who says, look, you can't have momentum unless you have breadths, 0:12:06.000 --> 0:12:10.080 which is it right now momentum or we need rebuilding breadth. 0:12:11.320 --> 0:12:13.800 So look, I would say the composition of the market 0:12:13.960 --> 0:12:16.000 is very, very different than it's been in the past, 0:12:16.040 --> 0:12:18.839 and it depends on what causes that chopping nous. Right now, 0:12:18.840 --> 0:12:21.680 we've got a market that's concerned about slower growth, not 0:12:21.760 --> 0:12:24.800 an outright recession, and so that's feeding these secular growth trades. 0:12:24.800 --> 0:12:27.880 It's feeding the tech trade, and the overwhelming market cap 0:12:27.920 --> 0:12:30.640 bias right now is towards that growth and tech sector. 0:12:30.679 --> 0:12:33.360 The T I M T space out weighs the cyclicals, 0:12:33.360 --> 0:12:35.920 and that's not normally the case in the SMP five hundred. 0:12:36.240 --> 0:12:39.480 If you were to see an outright growth scare where 0:12:39.600 --> 0:12:42.360 really something more nefarious has begun to be anticipated and 0:12:42.400 --> 0:12:44.320 the market wants to flip out of secular growth and 0:12:44.360 --> 0:12:46.960 into defensive that will drag the market down. But while 0:12:47.000 --> 0:12:49.520 we're in sort of this purgatory of slowing growth. That's 0:12:49.520 --> 0:12:52.280 not that bad. You could actually see the market continue 0:12:52.320 --> 0:12:54.480 to creep up just because of the composition of the 0:12:54.520 --> 0:12:57.040 market cap right now, So let's talk about the composition 0:12:57.040 --> 0:12:59.880 and the idea that growth. You're seeing more earnings for 0:13:00.040 --> 0:13:02.880 visions upwards, that they are stronger in the growth stocks 0:13:03.360 --> 0:13:06.760 than you're seeing even in value. Despite the fact that 0:13:06.840 --> 0:13:09.959 you're seeing this potential rotation, what does this mean to you? 0:13:11.320 --> 0:13:13.720 So you know, one thing I've noticed on the value side, 0:13:13.760 --> 0:13:15.760 and we make you when we make the case that 0:13:15.800 --> 0:13:18.400 sort of the cyclicals are dragging down the revision ratios. 0:13:18.400 --> 0:13:20.880 It's actually only part of the cyclicals. It's the financials. 0:13:20.880 --> 0:13:23.640 The energy companies have still been decently strong, the materials 0:13:23.679 --> 0:13:26.480 companies have still been decently strong. Um. You know, for 0:13:26.559 --> 0:13:29.320 us to really say there's a massive problem on that 0:13:29.360 --> 0:13:31.719 cyclical trade, we'd probably need to see the energy of 0:13:31.800 --> 0:13:34.199 material sectors start to falter a bit in the industrials 0:13:34.200 --> 0:13:36.320 as well. We're not seeing that yet, but it's clearly 0:13:36.360 --> 0:13:38.880 something we've got to keep an eye on. Laurie, great 0:13:38.880 --> 0:13:40.880 to catch up with you on a massive week ahead. 0:13:41.000 --> 0:13:43.200 Going to see you again, Lori Cavastine or obviously Capital 0:13:43.200 --> 0:13:46.200 Markets head of US Security Strategy Laurie mentioning the composition 0:13:46.240 --> 0:13:53.560 of this market heavily weighted towards big tech for the 0:13:53.640 --> 0:13:56.800 United States. Lloyd Minor joins US now to say sus 0:13:56.920 --> 0:14:01.199 Stanford University and their School of Medicine. Dean barely describes 0:14:01.240 --> 0:14:06.320 his original research in medicine, and also his academics were 0:14:06.360 --> 0:14:09.240 thrilled to Dr Miner could join US today. Dr Minor, 0:14:09.400 --> 0:14:13.240 a federal judge stood up last week and said Indiana 0:14:13.400 --> 0:14:18.000 University can force people in some way to get vaccinated. 0:14:18.080 --> 0:14:20.880 I know it's Stanford. You have a sterling record. I 0:14:20.920 --> 0:14:24.080 believe it's two hundred and fifty seven illnesses, which is 0:14:24.120 --> 0:14:27.360 remarkable given the size of Palo Alto. But what is 0:14:27.440 --> 0:14:34.320 your policy? Are you heading towards where Indiana is? Good morning, Tom, 0:14:34.320 --> 0:14:36.320 It's good to be with you. We do have a 0:14:36.480 --> 0:14:42.040 policy requiring vaccination for all healthcare workers and also for 0:14:42.320 --> 0:14:46.840 students at Stanford. There are provisions for people to apply 0:14:47.120 --> 0:14:52.880 for exemptions UH based upon medical or religious reasons, but 0:14:53.160 --> 0:14:56.640 we strongly encourage people to be vaccinated, and we're seeing 0:14:56.800 --> 0:15:00.480 a very high number of people in our system who vaccine. 0:15:00.480 --> 0:15:02.600 That's right where I wanted to go if you have 0:15:02.840 --> 0:15:07.560 that policy from someone of your reputer frankly Indiana University 0:15:07.600 --> 0:15:11.160 as well. Do you see action on the part of 0:15:11.200 --> 0:15:17.080 the unvaccinated, Yes, we do, roughly of people in our 0:15:17.120 --> 0:15:21.080 health care delivery system today or vaccinated. Uh, that number 0:15:21.120 --> 0:15:23.840 may be larger. We're still collecting the data, and that 0:15:24.160 --> 0:15:27.880 it continues to increase every day. I think vaccine hesitancy 0:15:28.000 --> 0:15:31.840 is coming down. We're seeing just how effective these vaccines are, 0:15:31.920 --> 0:15:34.880 and of course, with the emergence of the delta variant, 0:15:35.080 --> 0:15:38.760 vaccination is even more important. Dr Minor Our our colleague 0:15:38.800 --> 0:15:41.040 John Farroll pointed to a headline this morning out of 0:15:41.040 --> 0:15:44.240 Reuter's an exclusive report by them saying the US will 0:15:44.280 --> 0:15:47.800 not lift travel restrictions citing this delta variant, saying it 0:15:47.920 --> 0:15:51.320 is too early. Does this make sense from your perspective 0:15:51.400 --> 0:15:56.240 base on the science, It's always hard to know when 0:15:56.280 --> 0:15:59.640 to impose restrictions on the mobility of people or the 0:15:59.680 --> 0:16:02.800 active at dese of people. Certainly, the delta variant is 0:16:02.880 --> 0:16:06.200 more transmissible, but we do know that the vaccines are 0:16:06.280 --> 0:16:10.120 highly effective at preventing severe disease from the delta variant. 0:16:10.560 --> 0:16:13.920 You know, over the past several weeks. Over of the 0:16:14.000 --> 0:16:17.120 deaths in the United States from COVID nineteen have been 0:16:17.160 --> 0:16:20.600 an unvaccinated people, So while there is still a risk 0:16:20.640 --> 0:16:23.720 of infection in people who are vaccinated, the disease is 0:16:23.760 --> 0:16:27.360 typically much less now. Also, we know that masking and 0:16:27.400 --> 0:16:31.640 observing social distancing are effective measures as well. I think 0:16:31.680 --> 0:16:35.040 the decision of when to impose a travel restriction is 0:16:35.160 --> 0:16:38.240 one of the most difficult decisions our government leaders can make. 0:16:38.600 --> 0:16:40.880 I think the more we can do to keep track 0:16:40.960 --> 0:16:44.160 of the pandemic, where it's spreading, where it's receding, will 0:16:44.200 --> 0:16:47.960 help to inform those decisions. A very diplomatic answer, Dr Minor, 0:16:48.040 --> 0:16:50.640 there is a question also going forward of what we 0:16:50.680 --> 0:16:53.400 ought to be tracking in order to understand that we 0:16:53.480 --> 0:16:56.400 can open up our borders. We can open up some 0:16:56.480 --> 0:17:00.280 of these restrictions in full and a comprehensive and frankly 0:17:00.400 --> 0:17:04.199 united way. Is it fair. Is there a threshold of 0:17:04.280 --> 0:17:07.399 hospitalizations or death rates that we can look to to 0:17:07.560 --> 0:17:10.280 signal that perhaps we have the all clear and can 0:17:10.320 --> 0:17:13.800 go back to life as normal. I think you point 0:17:13.840 --> 0:17:19.920 out the critical UH point to monitor, and that is hospitalizations. 0:17:20.400 --> 0:17:23.359 We know that what happened early in the pandemic the 0:17:23.480 --> 0:17:26.960 tragedy in New York in April and May of last 0:17:27.040 --> 0:17:31.800 year that was related to the healthcare delivery systems becoming overwhelmed. 0:17:32.080 --> 0:17:35.399 Not enough hospital beds, not enough fentilators, in some cases, 0:17:35.440 --> 0:17:38.800 not enough oxygen. We can't allow that to happen again. 0:17:39.359 --> 0:17:42.360 We're going to continue to see mild to moderate illness 0:17:42.880 --> 0:17:47.280 for weeks months ahead because this pandemic, the virus continues 0:17:47.320 --> 0:17:51.239 to mutate, their more transmissible forms that emerge, So it's 0:17:51.240 --> 0:17:53.119 gonna be a long We're gonna be living with COVID 0:17:53.160 --> 0:17:55.600 for a long time. But we have to make sure 0:17:55.640 --> 0:17:59.520 that we don't overwhelm healthcare delivery systems. When I look 0:17:59.560 --> 0:18:04.879 at the I look Dr Minor at a nation is 0:18:04.920 --> 0:18:08.679 Tokville talked about, which is an intellectual anti science and 0:18:08.720 --> 0:18:12.040 I know every other nation has the same challenges as well. 0:18:12.600 --> 0:18:16.199 Stanford is one of our resources of science. And I 0:18:16.240 --> 0:18:20.199 mean that in a philosophy sense. How do we shift 0:18:20.280 --> 0:18:24.120 this philosophy in America? Well, I think there's a big 0:18:24.119 --> 0:18:26.600 responsibility for those of us who are in science and 0:18:26.640 --> 0:18:29.159 medicine to be better communicators, and we have been in 0:18:29.160 --> 0:18:32.040 the past. When we don't know something, we need to 0:18:32.040 --> 0:18:34.480 say that we don't know it. We also need to 0:18:34.520 --> 0:18:38.960 help people understand what the process of gaining evidence is. 0:18:39.880 --> 0:18:42.640 You know, no one, I think to your very few 0:18:42.640 --> 0:18:46.040 people two years ago would have predicted that something like 0:18:46.200 --> 0:18:49.680 COVID nineteen would happen in our time, and it did. 0:18:50.400 --> 0:18:53.359 And we're still learning about rates of transmission, how the 0:18:53.440 --> 0:18:56.159 virus changes over time, and what can be done to 0:18:56.200 --> 0:19:00.000 prevent it spread. We do know, however, that the vaccine 0:19:00.119 --> 0:19:03.560 that have been developed and given f DA Emergency use 0:19:03.840 --> 0:19:07.919 authorization United States are among the most safe and effective 0:19:08.000 --> 0:19:10.960 vaccines ever to be deployed. We have to leave it there, 0:19:11.040 --> 0:19:13.720 Dr Minor, Thank you so much. Lloyd Minor with an update, 0:19:13.760 --> 0:19:22.520 an important update from Stanford University. Let's get to Michael 0:19:22.560 --> 0:19:25.600 Kushmachawe with more Can Stanley, c IO of Global Fixed 0:19:25.600 --> 0:19:28.119 Income My cold. Part of the beauty of these conversations 0:19:28.160 --> 0:19:29.919 we have on this program sometimes is to get the 0:19:29.920 --> 0:19:32.320 more can Stanley view and compare and contrast that with 0:19:32.400 --> 0:19:34.800 another outfit. So let's talk about Goldman. Here's the quote. 0:19:35.000 --> 0:19:37.520 In the near term, a complete service sector recovery will 0:19:37.560 --> 0:19:40.280 likely require fully overcoming virus fares and returning to office 0:19:40.320 --> 0:19:43.000 work patterns. Both now appear likely to take longer than 0:19:43.040 --> 0:19:47.119 we anticipated. Goldman go on to deliver a one percentage 0:19:47.160 --> 0:19:49.879 point downgrade to GDP growth forecast for Q three and 0:19:50.000 --> 0:19:54.400 Q four. What's the more can Stanley view at the moment, well, 0:19:54.440 --> 0:19:58.200 our our view in investment management is that a slowdown 0:19:58.359 --> 0:20:01.360 of some degree is not necessar severally a terrible thing 0:20:01.440 --> 0:20:03.640 for the economy as a whole, and that we were 0:20:03.640 --> 0:20:06.639 growing very, very fast, you know, with almost double digit 0:20:06.680 --> 0:20:09.159 paste in the middle of this year, and it obviously 0:20:09.200 --> 0:20:12.000 we can't sustain that. And there's large inflationary pressures which 0:20:12.040 --> 0:20:15.159 are making it difficult to discern the underlying trends and 0:20:15.240 --> 0:20:17.440 inflation in terms of how much is temporary, how much 0:20:17.520 --> 0:20:22.920 is permanent or inflationary, raising inflation expectations, So modest down 0:20:23.119 --> 0:20:26.800 down down grades and growth a little bit longer time 0:20:26.800 --> 0:20:29.560 frame in terms of getting back to normal because of 0:20:29.600 --> 0:20:32.320 the rise of the delta variant, and more uncertainty as 0:20:32.359 --> 0:20:35.000 to how people are going to behave with this greater uncertainty, 0:20:35.240 --> 0:20:39.199 the unwillingness to increase vaccinations um and meaningfully in the 0:20:39.280 --> 0:20:43.240 in the near term. All presage that that what what 0:20:43.359 --> 0:20:46.880 was seen in terms of a downgrade in growth expectations 0:20:46.880 --> 0:20:49.600 in the bond market, with yields falling significantly from where 0:20:49.640 --> 0:20:52.080 they were at the end of Q one micro cust 0:20:52.080 --> 0:20:54.720 from this morning. Just to get math, John insisted I 0:20:54.760 --> 0:20:57.439 do some math just to shut me up, and and 0:20:57.440 --> 0:21:00.480 and Michael, I did a twenty year regression of the 0:21:00.600 --> 0:21:04.159 five year real yield. I'm sorry. We have been in 0:21:04.200 --> 0:21:09.639 a trend of inflation adjusting ever, ever, ever lower. How 0:21:09.680 --> 0:21:14.560 do we break the trend? That's absolutely true. It's but 0:21:14.600 --> 0:21:17.920 a combination of of design policy to bring inflation down 0:21:17.960 --> 0:21:21.879 over the forty years. I remember Alan Blinder, when he 0:21:21.960 --> 0:21:24.920 was Vice chairman of the FED, talked about opportunistic disinflation 0:21:25.200 --> 0:21:27.760 as a way to bring down inflation in the I 0:21:27.760 --> 0:21:31.000 think they've exceeded beyond their wildest dreams. But there's also 0:21:31.040 --> 0:21:35.160 been the underlying secular stagnation hypothesis of falling the secular 0:21:35.240 --> 0:21:38.240 dynamics of economies bringing down that rate as well. I 0:21:38.240 --> 0:21:39.840 think what has to happen is that the FED has 0:21:39.880 --> 0:21:43.600 to has to commit to trying to raise inflation by 0:21:43.680 --> 0:21:46.800 keeping monetary policy easy when things are good. This is 0:21:46.800 --> 0:21:51.160 the opposite of opportunistic disinflation mean opportunistic inflation, which means 0:21:51.160 --> 0:21:53.760 that as the economies do better, we don't respond to it, 0:21:53.800 --> 0:21:56.199 just as the over responded in the previous periods. But 0:21:56.280 --> 0:21:59.600 most importantly is that a policy error occurred in the 0:21:59.600 --> 0:22:02.480 tooth us in fifteen to two thousand eighteen period. Inflation 0:22:02.560 --> 0:22:05.640 expectations collapsed, and we need to get at least back 0:22:05.680 --> 0:22:07.720 to where he works in the two thousand twelve two 0:22:07.600 --> 0:22:11.080 thirteen levels, which were slowly getting back to. But the 0:22:11.160 --> 0:22:13.560 bet is will be a challenge with inflation as high 0:22:13.560 --> 0:22:15.760 as it is today to convince markets they will not 0:22:15.880 --> 0:22:19.400 revert back to any kind of behavior they had prior 0:22:19.760 --> 0:22:23.480 to this some pandemic Michael faith and how much the 0:22:23.520 --> 0:22:26.199 Fed is willing to allow this economy to run hot. 0:22:26.400 --> 0:22:29.240 Another way of looking at this is can real yields 0:22:29.240 --> 0:22:32.240 go more negative? They're already all time lows UH this 0:22:32.320 --> 0:22:35.840 morning as people look at inflation picking up, supply chain 0:22:35.880 --> 0:22:39.360 issues not abating, labor shortages not abating, and a FED 0:22:39.640 --> 0:22:42.199 continuing to be devish and pointing to the delta variant, 0:22:42.640 --> 0:22:44.960 is this a trend that has more steam? Can we 0:22:45.000 --> 0:22:49.040 see two percent negative real yields? I think you can 0:22:49.119 --> 0:22:51.639 if if they remain committed they will not change a 0:22:51.720 --> 0:22:54.959 monetary policy. You think about the mathematics of a ten 0:22:55.040 --> 0:22:57.880